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Estimated taxes, part 2: Who is considered self-employed?

Let's resume the discussion we started last week about estimated taxes.

As we noted in the first part of the post, self-employed people aren't the only ones who may have to pay estimated taxes. The requirement to make these payments applies more broadly to income from sources other than wages. It also applies to individuals who don't have enough withheld from their paychecks.

But who is considered self-employed for purposes of paying estimated taxes? In this part of the post, we will address that question.

First of all, it is important to be aware that there are some workers who receive a Form W-2 from their employers but still have to pay self-employment tax. This is the case for members of the clergy and certain other religious workers.

IRS Publication 517 outlines the considerations involved in self-employment tax for ministers and others to whom this requirement applies.

Self-employment tax issues also arise for family caregivers. There are very detailed rules on when a household employer has to withhold taxes and when household workers have to pay self-employment tax.

These examples of clergy members and household workers show how complicated the question of who is considered self-employed for tax purposes can become.

And of course a very common complication is the long-standing issue of distinguishing an employee from an independent contractor. In theory, it sounds so simple. Contractors are self-employed individuals who receive 1099 forms and are generally subject to self-employment tax. Employees, by contrast, receive W-2 forms and are subject to tax withholding on their wages.

In practice, however, determining whether a particular individual is truly a contractor involves an examination of very specific facts in each case. And in an economy that increasingly emphasizes "gigs" rather than traditional jobs, these cases will continue to arise.

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