Self-Employment

Self-employment is having work for oneself, not for a specific employer, paying a salary. Self-employed people often act as freelancers or independent contractors cooperating with other businesses.

Self-employment person is responsible for paying taxes, because payers don’t deduct taxes.

Self-employed individuals may have different activities but they are highly skilled just at a certain sphere of work.

Types of Self-Employment

There are three main types of self-employment.

Independent contractors. Individuals are taken on for certain jobs. They get payment only for their work, they don't get compensation from their employer, because they are not considered employees. Their customers are not traditional employers. They don't have to pay taxes from their payments for finished work.

Some skilled workers (doctors, lawyers, journalists, book keepers or accountants), and trade workers (sanitary technicians, electrical specialists, semiskilled workers) can be independent contractors.

Partnership. Partnership is a cooperation of two or more people to operate and control a business together and share profits and losses.

Partnerships can be different. It can be general partnerships, where all participants share profits and responsibilities equally. Also, there can be other kinds of partnerships, where some partners may have limited responsibilities and profits. Moreover, there can be a “silent partner”, who contributes money to the business, instead of managing its operation every day.

Sole proprietors. They are single individuals, owning and operating unincorporated businesses. It can be only one owner of this type of enterprise, otherwise it would be a partnership. It is similar to partnership, but here it’s just one person with operational management. Sole proprietors can work individually or they can hire some employees to help them.

There is no difference between the owner and the business entity in sole proprietorships by law. Sole proprietors get all the profits from the business and have responsibility for all losses.

Self-Employment and taxation

Any type of self-employment has to pay the Self-Employment Contributions Act (Social Security, Medicare taxes) and income taxes. Self-employment individuals pay employer and employee taxes, because their customers don’t pay taxes. If the net profit of a self-employed person is less than $400 per year, then there is no need to pay income tax.

Self-employed people have to list annual taxes and pay calculated quarterly tax. They have to pay income tax and self-employment tax.

The gig economy is a part of digital development. People use apps to offer services, such as taxi drivers, dog walkers, baby sitters, etc. These kinds of activities are flexible, but have low payment, stable work, no sick leave or healthcare insurance. Gig economy people have to pay taxes by themselves, because they don’t get W-2s.