Self-Employment Tax (SE Tax) is a Social Security and Medicare tax used for those that work for themselves. You determine your SE tax using the IRS Schedule SE (Form 1040). You can deduct half of your SE tax when determining your adjusted gross income, but you cannot deduct your Social Security or Medicare taxes.

The self-employment tax rate in 2010 is 15.3%: 12.4% for social security and 2.9% for Medicare. The Schedule SE for the current year will always give you the up-to-date rate for that year.

To pay SE tax, you must have a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). You can apply for a SSN by using Form SS-5, Application for a Social Security Card. Call (800) 772-1213 for any questions. If you are not eligible for a SSN, you can get an ITIN by filing Form W-7, Application for IRS Individual Taxpayer Identification Number.

To pay the SE tax, you must be self-employed. Here are the IRS standards to determine if you are self-employed and, therefore, must pay the tax:

• You carry on a trade or business as a sole proprietor or an independent contractor.
• You are a member of a partnership that carries on a trade or business.
• You are otherwise in business for yourself.

To be considered self-employed, you must be using your business to make a profit. Even if your business does not make a profit, as long as your activities are in place to do so, then you are self-employed. Your business activities can be full or part-time to qualify.

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