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  • Daniel Rodriguez

When Do I Have to File Self Employment Taxes in California?

Owning and operating a business is a task that requires a person’s undivided attention. A business owner has to be concerned about various issues from keeping their inventory well-stocked to ensuring that payments from clients are timely paid. Even with all of these obligations, it is still extremely important that a self-employed person files their self-employment taxes. If you require assistance filing your self-employment taxes, you should consult with an experienced Roseville self employment tax lawyer.

At the NewPoint Law Group, LLP, we are devoted to helping business owners manage their tax liabilities. Our firm is here to explain when you have to file self employment taxes in California. To schedule a confidential legal consultation to discuss your tax situation, contact the NewPoint Law Group, LLP at 1 (800) 358-0305.

Defining Self-Employed Workers in California

The California Self Employment Tax applies to residents of California who are not employed and receive a check from a business entity. Workers that are employed by a business entity have self employment taxes automatically deducted from their weekly or bi-weekly paychecks to fund federal or state programs. However, self-employed workers are required to pay this tax manually.

The California Franchise Tax Board (FTB) defines what a self-employed worker is in California. However, the FTB uses most of the same criteria that the Internal Revenue Service (IRS) uses to identify a self-employed worker. For example, the FTB and the IRS both consider a sole proprietor that has a yearly income of at least $400 to be a self employed worker. Other examples of self employed workers identified by the FTB also include:

  1. Independent contractors

  2. Members of a partnership

  3. Part-time business owners

  4. Members of a limited liability company that is structured as a partnership

If you do not fall under any of the above categories, but you are a resident of California who works for yourself, you may still have to pay self employment taxes. To learn more about when you need to file self employment taxes, you should continue reading and speak with an experienced California tax attorney.

When Must Self Employment Taxes be Paid?

If you are a self employed worker or business owner and your net earnings do not equal at least $400, you are exempt from paying the self employment tax. As mentioned, the self employment tax is distributed to the Social Security and Medicare programs. If you earn more than $400 as a self employed worker, you must determine how much money you must pay into these programs.

Workers that are employed by a business entity have their taxes automatically withdrawn and do not have to worry about calculating their self-employment tax liability. However, as a self-employed worker, you must examine your profits and withhold an appropriate amount to handle the tax payments. Self employed workers must pay their taxes on a quarterly basis. This means that if a business owner does not accurately estimate their profits, this could interfere with their tax payments.

The FTB and the IRS follow the same schedule when it comes to making quarterly self employment tax payments. It is possible for a taxpayer to owe up to 25% of their annual tax estimate each quarter. In California, the self employment tax rate is 15.3%. Out of that 15.3%, 12.4% is reserved for Social Security with a collectible limit of $118,500 of a self-employed individual’s net earnings. The other 2.9% is distributed to Medicare, and it does not have a collectible earnings limit. However, as tax regulation changes, these numbers are also subject to change. The following is the quarterly tax payment schedule for the FTB and IRS:

  1. First Quarter Payment – April 18th

  2. Second Quarter Payment – June 15th

  3. Third Quarter Payment – September 15th

  4. Fourth Quarter Payment – January 15th of the following year

Failure to pay your self employment taxes can result in a taxpayer facing severe tax penalties. Tax penalties typically start at 5% of the total tax due on the original filing date. This percentage is usually increased every month or every partial month until the penalty reaches a maximum of 25%.

If you cannot afford your self-employment tax payments, you should communicate this to the IRS and the FTB as soon as possible. These agencies are usually willing to work with a taxpayer to find an arrangement that works for both parties.

If you continue to ignore the IRS, you could have a tax lien issued on the property you own or property that belongs to your business. After this happens, the IRS has the power to issue a tax levy to seize all property that is the subject of the lien.

California Self Employment Tax Attorneys You Can Trust

The NewPoint Law Group, LLP understands how tedious it can be to keep track of various tax regulations and we are here to streamline the process for you. Our firm has represented self-employed workers and businesses in Roseville, Folsom, Huntington Beach, and across the State of California, and we would be proud to represent you. To schedule a confidential consultation, contact the NewPoint Law Group, LLP at 1 (800) 358-0305, or contact us online.

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