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Self-employment is a type of employment where the usual employer/employee relationship does not exist. The client often works for themselves rather than for an employer. When the client has an employer, the employer decides to hire the client but not as a regular employee. The employer does this in order to take advantage of laws concerning employment benefits, tax implications, and liability.

The simplest way to identify this type of relationship is to ask good questions during the interview.

Who is self-employed?

A person is self-employed if he or she

  • labels him or herself as self-employed

  • works for an employer who does not withhold income taxes or FICA (Federal Insurance Contributions Act) contributions from his or her pay.

  • verifies he or she filed a tax return as self-employed despite the employer deducting income taxes or FICA contributions from his or her pay.

Self-employed Business Structures

A sole-proprietorship, partnership, or limited liability company (LLC) may generate self-employment income for its owner, partner, or member. S-corporation shareholders do not qualify as self-employed persons.

Self-employment income examples:

Self-employment includes boarding, capital gains, farming income, income from odd jobs, independent contractors or small business owners, profit sharing, and rental income.

There are specialized rules for calculating the self-employment income derived from boarding, capital gains, farming, profit sharing, and rental income.

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