Do Independent Contractors Have to Pay Social Security Tax?

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Independent contractors pay Social Security and Medicare taxes as self-employment taxes. If you meet income thresholds, these taxes apply to any earnings you receive for self-employment, such as for tutoring or baby-sitting. To pay, you must file special paperwork with your annual federal income tax forms. In many cases, you'll also have to make estimated payments during the year.

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Self-Employment Tax Rates

The self-employment tax rate for independent contractors is ​15.3 percent​ as of the ​2021 tax year,​ reveals the IRS. This breaks down to ​12.4 percent​ for Social Security for the first ​$142,800​ (increasing to ​$147,000​ in 2022) of income and ​2.9 percent​ for Medicare with no income limit. These rates include both the employer and the employee portion of these taxes.

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Consider Also:Self-Employed Tax Deductions, Benefits & More

Minimum Income Levels

You owe self-employment taxes as an independent contractor only if you have a net profit of more than ​$400​ from self-employment income. In general, compute your net profit by subtracting your business expenses from your self-employment income.

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Even if you earn less than ​$400​ from self-employment, you still may have to file income taxes. For example, if your total income including other jobs exceeds a certain minimum. This income threshold varies with your age and filing status.

Filing Estimated Taxes

In place of withholding taxes, independent contractors typically pay estimated Social Security, Medicare and income taxes four times a year. Using Form 1040-ES, Estimated Tax for Individuals, compute whether you need to file quarterly and how much you owe.

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If you're required to file, your payments must be postmarked no later than ​April 15, June 15 and Sept. 15​ of the tax year to avoid penalties. You must make an additional estimated payment by ​Jan. 15​ of the following year unless you file your annual return by ​Feb. 1​.

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Consider Also:What are Estimated Tax Payments: Definition, How & When to Pay

Avoiding Quarterly Payments

If you're an independent contractor who also works as an employee, you may be able to avoid filing quarterly taxes. As long as your employer withholds an amount large enough to cover self-employment and income taxes on your side income, quarterly filing isn't required. You can also fill out a new W-4 form to increase the amount your employer withholds.

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Filing Annual Taxes

When you file your annual taxes, compute your profit as an independent contractor on Schedule C, and transfer this amount to Schedule 1, ​line 3​ of your Form 1040. Also calculate your self-employment taxes on Schedule SE, and transfer the total to ​line 4​ of Schedule 2 of your Form 1040.

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In addition, calculate one-half the self-employment tax on Schedule SE's ​line 13​, and claim this amount as a deduction instructs Bench, as the IRS lists the employer portion of the self-employment tax as a deductible expense.

Consider Also:About the Schedule SE for Self-Employment Taxes

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Possible Penalties for Shortfalls

If you fall short in paying self-employment and income tax, the Internal Revenue Service can charge you a penalty. For example, you may receive a penalty if you underestimate quarterly payments or don't have enough withheld from employment to cover taxes on side income. Even if you pay in full by the end of the year, you can receive a penalty if you're behind on one of the quarterly due dates.

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