Do I Need to File a 1040 If I’m Self-Employed?

If you earned a little income on the side, you might be wondering if you still need to file a Form 1040 if you’re self-employed. The simple answer to this question is yes, almost certainly! The threshold requiring you to file a Form 1040 (if you’re self-employed) is $400.

Does that seem ridiculously low? According to the IRS, in most cases, single taxpayers don’t need to file a tax return unless their income exceeds $12,000, and married filing jointly filers don’t have to file unless their income exceeds $24,000.

If the income levels for other folks is so high, why is it a mere $400 for those who are self-employed? Let’s explain.

The “Self-Employment Tax”

It’s called the self-employment tax if you’re earning money on your own outside of a W-2 employer. But, to everyone else, it’s known as FICA. FICA stands for Federal Insurance Contributions Act, the law that created the tax.

This is the tax that the government collects to fund Social Security and Medicare. As a salaried employee, you pay this tax through your paychecks. The tax rate is 7.65% on income up to $128,400 for 2018 and $132,900 for 2019.

But what many taxpayers may not realize is that the 7.65% paid by salaried W-2 workers is only half of the FICA tax; the other half is paid by the employer. The actual FICA tax totals 15.3% of your income.

What that means for you if you’re self-employed is you are responsible for both employer and employee parts. Your net business income is subject to the full FICA tax at 15.3%.

Under IRS regulations, you are required to pay this tax if your net business income is at least $400. Your net business income will be claimed on Schedule C (or Schedule C-EZ), and your self-employment income will be calculated on Schedule SE. Your information from your Schedule C will flow through to your Form 1040 and the new Schedule 1 Additions to Income and Adjustments to Income.

But don’t worry about forms or knowing how to figure out your self-employment taxes on your own. TurboTax Self-Employed asks you simple questions about your business income and expenses and puts it on the correct forms. If you have questions, you can also connect live via one-way video to a TurboTax Live Self-Employed CPA or Enrolled Agent with an average of 15 years experience to get your tax questions answered.

If you use QuickBooks Self-Employed, you can track your business income, expenses,  mileage, and capture your receipts year-round – the information will automatically transfer to your TurboTax Self-Employed tax return.

The Self-Employment Tax +  Federal Income Tax

Just as salaried workers must pay both FICA and federal taxes on their income, the self-employed must also pay both the self-employment tax and federal income tax on their net business income.

If you’re a single filer, and your total net income is less than $12,000 you probably won’t have a federal income tax liability. But if you have a profit in your business, you will have to pay self-employment tax on that amount.

Here’s an example. Let’s say that you earned a $10,000 profit from your business. Your income is below the threshold that would require you to file a tax return ($12,000), based on federal income taxes alone. But it is well above the $400 threshold that will require you to file for self-employment purposes.

So, if you’re wondering if you need to file a Form 1040 if you’re self-employed, you should generally assume that you will as long as your business earns a profit. And $400 is all it takes.

Don’t worry about knowing all these tax laws. TurboTax Self-Employed will ask you simple questions about your business and give you the business deductions you deserve based on your answers. The TurboTax Self-Employed industry-specific deduction feature can also uncover unique business deductions specific to your industry.

You can also connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered in English and Spanish. A TurboTax Live CPA or Enrolled Agent can even review, sign, or file your tax return.