self-employment income


I'm contemplating leaving full-time employment and taking a contractor job. That would be paid as 1099 wages. I see that ESP+ has a tab for self-employment income which is where I assume I'd record those earnings.

The SS section refers to copying income from the employee tab of the earnings section. But won't I have to pay into SS from my 1099 income? Is that income not reflected in SS history? If not automatically, how do I account for the fact I'd be paying self-employment payroll taxes?

Further, being self-employed I'd be eligible to contribute a standard IRA. If I choose to do so, do I just subtract those contributions from the self-employment income, before recording it? Or are all individual deductible contributions deducted from all earnings for SS earnings history reasons, regardless earning source?




Never mind the part about the IRA contributions. While I wouldn't be covered by an employer retirement plan, my wife would be and our combined AGI exceeds the upper limit for IRA contribution. Unless there's a back-door way to do that, I wouldn't be able to make deductible contributions.

IRA deduction limits

dan royer's picture

As we discussed, but for the record here, yes, the 1099 income requires a different payroll tax--you pay both your own part as usual, but also the employer part (since you are both the employer and the employed). Entering it as self-employed income takes care of this matter. But don't also enter it as future covered earnings. That would double count the payroll taxes.

For the benefit of other readers, all self-employment income is subject to Social Security taxes (up to certain limits) and contributes to your benefits. In contrast, not all employee wages are subject to Social Security taxes or contribute to Social Security benefits. E.g., some local or state governments opt out of SS. If you include that income as SS wages you'll overestimate the amount you'll have on hand.

ESPlanner addresses these differences by including all self-employment income in calculating SS benefits, but includes other wages only if the user specfies they contribute to SS. There's no need to enter self-employment income on the SS tab, but there is a need to record employee wages there if the wages are SS-eligible because ESP can't determine whether they're eligible, or not, without your indicating so.

This explanation is found in the Guide, while on the Future Covered Earnings tab:

"ESPlanner uses estimates of future Social Security covered earnings to calculate future Social Security benefits. All self-employment earnings are covered (subject to taxation) by Social Security. Hence, ESPlanner needs to learn only about future covered employee wages, since self-employment earnings have been entered in the Earnings screen."


While you may not be eligible to contribute to a regular IRA, you could still set up a qualified plan for your self-employed business (SEP, Simple IRA, or solo 401k). If your net self-employment is high enough, you could contribute up to $53,000 to a solo 401k that has a profit sharing feature. If your net income is on the low side, then a Simple IRA would likely work best because it's the only one of the three that isn't based on a percentage of income. For example, you could contribute up to $12,500 to a simple IRA in 2015 (plus an extra $3,000 if you are age 50) so long as your net self-employment income is at least $12,500 or $15,500.

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