When married couples file a joint return, it affects many areas of their taxes, using a different set of tax brackets and qualifying for a handful of tax credits that aren't available to individual filers or couples who file single returns. Self-employment taxes, however, apply universally to all taxpayers regardless of their filing status. As with unmarried and single tax filers, the Internal Revenue Service assesses the tax against any income you receive as an independent contractor.
All independent contractors must pay the self-employment tax if they earn $400 or more from self-employed activities in a tax year. Because your self-employment income isn't subject to payroll taxes that collect funds for Social Security and Medicare, the self-employment tax serves as an equivalent to payroll taxes. If you qualify to pay the tax, you must pay a 13.3 percent tax on all earnings up to $106,800, and 2.9 percent for all earnings beyond that threshold. You only pay the tax on income generated by your self-employment activities, not on your spouse's wages or other earnings.
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The self-employment tax serves as an alternative to FICA withholdings on an employee's paycheck, but workers also face income tax withholding from each paycheck, calculated independently from FICA withholdings. The IRS requires you to report all income you earn from your own business, and then pay income taxes in addition to self-employment taxes on those earnings. Because the tax brackets for married filing jointly are broader, you're likely to be taxed at a lower rate on these earnings than if you were single. For example, the 28-percent marginal rate for single filers begins at $83,601 in 2011, while married couples aren't taxed at that rate until their income reaches $139,351.
If your spouse is a traditional employee and subject to payroll withholding, she may adjust her withholding to help compensate for your self-employment tax burden. Because the IRS applies overpayment of payroll withholdings to your joint tax bill, your spouse may make additional contributions that indirectly apply to your self-employment tax burden. By instructing her employer to withhold an additional portion of her paycheck for FICA taxes each payroll cycle, your year-end debt to Social Security and Medicare taxes is reduced.
The IRS requires all workers to pay income taxes as they earn their money rather than making a lump-sum tax payment at the end of the year. Employees' payroll withholdings meet this requirement, but self-employed workers must make quarterly estimated tax payments based on their earnings. Either file a quarterly payment using a Form 1040-ES, or have your spouse adjust her withholding instructions so that her employer withholds additional amounts each paycheck for income tax.