What Is Self-Employment Tax? And Why You Should Care

Of all the taxes you have to keep up with as a self-employed house cleaner, housekeeper or maid service owner, Federal self-employment (SE) tax is one of the most important.

Federal SE tax is like the grandmother of all taxes for self-employed business owners.

If you fail to pay federal SE tax, you can get into deep trouble with the IRS. In a short period of time, you can find yourself loaded down with penalties and interest.

And that’s just the “easy” part. In the worst cases of SE tax trouble, your bank account can be seized by the IRS and a lien placed against your car or house.

Yes, it can get that bad.

Related: Find out some of the ways tax trouble can sink you with the story of my “tax education”. 😱

What Is SE Tax?

Self-Employment (SE) tax or estimated tax is made up of two taxes.

One is your contribution to future retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits under the Social Security program.

The other tax is prepayments on your federal income tax bill made throughout the year.

SE tax is the small business owner’s version of FICA. For the self-employed, the SE tax rate is 15.3 percent of your income.

The SE tax rate has two parts: 12.4 percent for Social Security and 2.9 percent for Medicare.

People who earn more than $400 per year from self-employment must pay the entire 15.3 percent from money earned in their business..

If you are a sole proprietor, business partner or member of an LLC, the SE tax buck stops with you.

As a self-employed person, you’re responsible for keeping track of how much tax you owe, saving the tax money and paying SE tax⎯on time and in full.

Estimated Tax?

SE Tax is a major part of estimated tax. SE Tax is often called estimated tax because you have to make regular estimated payments of SE tax every 3 months or quarter.

The 11:45 minute Keeper Tax video below gives easy to understand information about quarterly estimated taxes.

Jump to the answers of these common questions:

As a self-employed house cleaner, setting aside 30 percent for taxes will keep you safe from underpayment penalties.

However, with the long list of tax deductions self-employed house cleaners enjoy, you can set aside as little as 25 percent of your income per week for taxes and still not underpay your SE tax.

The people most likely to get hit with underpayment penalties by the IRS are those who fail to pay any quarterly SE taxes (every three months).

Should You Pay In Equal Amounts Each Quarter?

Your tax preparer will generally give you four vouchers for estimated federal tax payments when they do last year’s federal tax return.

The voucher amounts are for 4 equal payments. Those payment amounts are based on last year’s income.

However, you might end up with unequal payments for estimated taxes if:

Over the years, I used a simple system to save for taxes each week.

When estimated taxes were due, I paid the full amount I’d collected in my estimated tax sub-account.

Using that system I never underpaid nor overpaid estimated SE taxes.

The self-employment tax amounts I saved every week, less deductions led to tax refunds most years.

Why Tax Deductions Are Important

Tax deductions for self-employed house cleaners can lower your yearly tax bill, saving you hundreds of dollars.

As a self-employed person, you can claim deductions for work expenses the IRS considers “ordinary and necessary” for running your cleaning business.

The payoff for deducting your expenses comes when you file your yearly income tax.

With those deductions, a big chunk of what you prepaid as SE or estimated tax can come back to you as a refund.

Self-Employment Tax Deductions

Common tax deductions for self-employed house cleaners include:

Related: Self-Employed House Cleaner’s Guide to Car (and Bus) Tax Deductions

When You Should Start Paying SE Tax

Even if you only have one or two customers per week as a side business, you may still need to pay quarterly taxes. What you owe in taxes can pile up quickly.

You can find yourself owing $1000 or more in taxes for the year with small weekly earnings.

Do You Earn Too Little To Pay Self-Employment Tax?

If you owe $1,000 or more in taxes for the year, the IRS expects you to make quarterly income tax payments on your business profit for that tax year.

In the eyes of the IRS, you are making a profit if your self-employment income is higher than your business deductions.

State Self-Employment Taxes

Most states require sole proprietors and general partners and members of limited liability companies (LLCs) to pay estimated self-employment income taxes.

With state self-employment taxes, you are paying a portion of your state income taxes throughout the year.

State self-employment taxes are often paid quarterly, similar to the way self-employment taxes are paid to the federal government.

Many states issue payment vouchers (like the one shown below) that self-employed persons must use every few months to prepay a portion of the state income tax.

Many states also have special payment portals so you can pay your tax online with a credit or debit card.

If you fail to pay any state estimated tax, don’t pay enough estimated tax or pay late, penalties, fees and interest could result.

Your accountant or a qualified tax preparer can help you set up and file state estimated income tax.

Connect With Your State Tax Department

States With No Self-Employment Tax

✏️ Note: Be aware that states with no self-employment tax may still have state-wide business taxes you have to pay monthly, quarterly or yearly.

For example, Washington State has the Business and Occupation (B&O) tax that must be filed by all businesses similar to self-employment tax in other states.

SE Tax or Estimated Tax Payment Deadlines

Federal estimated tax payment deadlines are each quarter. Payments for:

Quarter	Tax Period	Tax Due
Q-1	January 1 to March 31	April 15
Q-2	April 1 to May 31	June 15
Q-3	June 1 to August 31	September 15
Q-4	September 1 to December 31	January 15 of the following year

Tax deadlines are the dates your forms and payment to the IRS must be postmarked if you pay by mail.

Or the payment date if you are paying by credit or debit card.

Your tax preparer should provide payment vouchers for the coming year when you file your taxes.

However, if you just started out and you’re making money and don’t have a tax preparer yet, you can start lowering your tax bill by making payments directly to the IRS.

Simply download an up-to-date Form 1040-ES directly from the IRS. Print out the quarterly vouchers and mail your estimated tax payment to the IRS.

Self-employed house cleaners must also file an annual tax return (Form 1040) by April 15th each year including Schedule SE and Schedule C.

If you overpay your estimated tax during the year, any overpayment will come back to you as a tax refund.

4 Ways To Pay Your SE Tax

1. Mail A Check

If you pay by check and mail in your payment, you can mail SE tax form (Form 1040-ES) to one of several IRS filing addresses. These filing address lists are updated each year.

If you mail the payment, it’s a good idea to send the check by certified mail with a return receipt. You will get proof of mailing and proof the form was received by the IRS.

Together with your cancelled check, you will have solid proof of payment and avoid tax tussles with the IRS down the road.

2. Online with a Credit or Debit Card

You can also can pay online. The IRS partners with 2 card processors for tax payments. The processors all charge fees.

I’ve used Pay1040 and found the fees reasonable. Plus paying by card is faster and cheaper than mailing a check and paying certified mail fees. I just print out the receipt and I have instant proof of payment.

3. Direct Pay

You can also pay the IRS for directly from your bank account with IRS Direct Pay in English or Spanish.

Direct Pay is a free and fast way to make SE or estimated tax payments. Your payments are credited the same day, even if the actual money is taken from your account the next day. That same day credit is important if you are on a tight deadline.

4. EFTPS

The IRS also provides another way to pay them directly online through the Electronic Federal Tax Payment System or EFTPS.

The EFTPS is a system you must sign up for, so there is some work on the front end. The good news is once your EFTPS account is set up, you can pay any federal tax directly from your bank account to the IRS for free.

With EFTPS you can also:

If you pay employees through a payroll service, EFTPS can be a handy tool to make sure the payroll service is sending payroll taxes on time and in full to the IRS.

If you check your payment history and find payments are incorrect or missing, the IRS will help you investigate the missing or incorrect payments.

What EFTPS won’t do is calculate your tax amount, remind you of the tax due dates or let you know which tax forms to use. EFTPS is strictly a tax payment system.

Saving for Self-Employment Tax

Once a week, it is important you separate SE tax funds from the rest of your earnings.

After you make your weekly deposit of checks or all of your credit and debit card payments are deposited into your business checking account, transfer a percentage of your earnings into a dedicated SE Tax savings account or sub-account, at your bank or credit union.

That percentage can be as low as 25 percent or as high as 30 percent.

In this way, your SE tax funds are out of your checking account and can’t be “accidentally” spent on something else.

Then every three months, pay your saved SE tax funds to the IRS and your state.

Related: Get details and forms for setting up a simple tax saving system.

Set Up A Recordkeeping System

Keeping complete records is not the most fun part of running your business, but it is essential.

Clear, organized records of your earnings and expenses are especially important when preparing for SE or estimated taxes you must pay every quarter.

Without complete records, you won’t know exactly how much you made each week, what percentage you put away for taxes or how much to pay every few months.

You risk underpayment or worse, not paying any SE taxes on time and in full.

Both can leave you on the hook for penalties and fines by the federal government and your state government.

Related: Discover 10 simple records self-employed house cleaners should keep.

Sweet Rewards

Federal self-employment (SE) tax or estimated tax is like the grandmother of all taxes for self-employed people.

Like most grandmothers, SE tax demands your attention and respect.

Failure to take care of SE taxes on a regular basis can lead to sour consequences like penalties and interest. 😫

It helps to think of the money you set aside for taxes as not yours to keep, spend or save.

You’re just holding that money for the federal and state government until the next quarterly tax due date.

One thing to be careful about when you are new to being self-employed is thinking you earn too little to worry about SE tax.

Just $200 a week in earnings is a large enough income for paying SE taxes.

Good Habits Matter With Taxes

You can take the stress out of paying your quarterly estimated taxes to the federal government and your state government by setting up a simple system of recordkeeping and saving for your SE taxes.

Get into the habit of setting something aside for taxes from the very beginning so you’re not tripped up with a surprise tax payment on April 15th.

Like the best grandmothers, SE tax or estimated tax can reward you with a sweet tax refund if you take every deduction available to self-employed house cleaners.

Grandmother’s good side is a sweet place to be.