Tax gripes: What's this extra tax?
The microbusiness year,
like the garden year, follows a sort of annual rhythm. As March
rolls in, I start to notice the signature feature of early spring on
microbusiness owners' blogs --- griping about taxes. Rather than
ripping into these complainers on their own blogs, I feel obliged to
mention my stance on taxes here...getting my annual anti-griping out of
my system.
The anti-tax griping is
a bit understandable since, as a self-employed person, you're suddenly
responsible for giving more of your hard-earned money to the IRS.
If you've spent your life going in to work in the morning and
collecting your paycheck every few weeks, you may not have realized
that the taxes being deducted from your check aren't the only payroll
taxes the government gets out of you. You probably noticed that
the federal taxes withheld from your paycheck are divided into two
categories --- social security/medicare withholding and federal income
tax withholding. While you're working for the man, your employer
matches the amount withheld from your paycheck for social security and
medicare and sends that matching amount directly to the federal
goverment. When you become self-employed, you're responsible for
paying both the part that's normally withheld from your check and the
part your employer would pay, with the latter part now being known as
your self-employment tax.
Although this "extra"
tax feels a bit difficult the first time you pay it, you soon realize
that it's only fair. After all, you're now your own employer as
well as your own employee, so you should have to pay both parts of the
social security tax. Despite all the griping, I never hear about
microbusiness owners who willingly give back their monthly stipend and
healthcare benefits once they retire. Clearly, the social
security safety net has a value we all appreciate, and folks just like
to complain.
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