Three new things I learned about taxes since being laid off
byMay 20th 2009 8:00AM
Since 2004 I've been a here-and-there freelance writer, in addition to working full-time as a salaried employee -- first for NY1 News, then most recently for TheStreet.com. I know it's important to keep organized, to hold onto invoices and business receipts and to tuck away a considerable chunk of my freelance dough to avoid surprises come tax season.
But two months ago I got the pink slip and immediately joined a quarter of the workforce in the "freelance economy." I am now a full-time, self-employed worker and am discovering there is so much more to know when it comes to my taxes.
Here's a sampling:
1. Your health insurance premiums are deductible. I've been completely in the dark about this. As someone with a full-time job who freelanced on the side, this was never applicable to me because I had employer-sponsored insurance. My premiums were automatically deducted from my paycheck. But now that I'm on COBRA and forking over 102% of my old health care costs myself, the IRS says I can deduct the full cost of my health insurance premiums. This is good.
2. You have to pay extra for social security. I'm not even slated to receive social security, yet I have to pay more for this endangered retirement benefit? Yes. It's all part of the so-called "Self-Employment Tax," or SE Tax which includes Social Security and Medicare taxes. When you're a salaried worker you pay 50% of the Social Security and Medicare taxes and your employer pays the other half. But when you're a full-time freelancer (i.e. a self-employed individual) you pay both halves. The Social Security tax rate for 2009 is 15.3% up to $106,800. If you earn more than $106,800, you only have to pay only the Medicare portion of the Social Security tax, or 2.9%.
3. You can deduct half of the self employment tax. There is a silver lining to the SE tax discussed above. According to the IRS, you can deduct 50% of your SE tax when calculating your adjusted gross income. This may help reduce your AGI and potentially trim your overall taxes.
Alright. Time to call my tax guy for the rest.