net earnings from self employment
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For purposes of determining whether Social Security benefits are payable, a person's earnings for a taxable year are the sum of pay for services as an employee plus all net earnings from self-employment (minus any net loss from self-employment) for that year. Wages for Social Security purposes are gross wages - wages before any payroll deductions for income tax, Social Security tax, dues, insurance, or other deductions by the employer. We use gross wages as the basis for Social Security credit and for determining whether benefits must be withheld because of earnings.
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Question: My daughter will be able to open a Roth IRA this year with money she earns from baby-sitting over the summer. Does she need to pay the self-employment tax, which would eat up 15.3 percent of her income?
Answer: No, your daughter does not have to pay the self- employment tax. Ordinarily, individuals must pay the tax if their net earnings from self-employment are $400 or more. But there are special exceptions for kids.
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