Self Employment tax not paid since i have become an independent contractor?

since i have become an independant contractor over 2 years ago, i have only been paying income taxes and i have never paid into any self employment tax. I work specifically for only one company but they use me as an independant contractor to reduce their tax liability but i was never informed to pay these taxes. When i do my taxes each year, i have never had to calculate these taxes on the forms i use. A friend i was talking to asked me how i never paid these taxes. I said i simply have never been asked to pay these... what should i do? The IRS has never contacted me, i dont get a form to pay these...? If i were to start paying these i couldnt survive on my salary. Should i ask my company to make me an employee instead or pay me a higher salary? Please help!!!

How are you claiming this income? What line are you putting it on on your tax return??

You SHOULD be filing Schedule C or C-EZ to calculate your net profit. If that exceeds $400, you attach Schedule SE to calculate the self-employment taxes. If you have not been doing that, you need to file amended returns on Form 1040-X to correct this. You'll owe approximately 14% of your net profit in SE taxes for the 2 years, plus penalties and interest for late payment.

There is an alternative that will save you about half of what you owe. File a From SS-8 http://www.irs.gov/pub/irs-pdf/fss8.pdf with the IRS to get a formal ruling on your employment status. You are almost certainly an employee, not an IC, and if the determination goes in your favor you'll receive W-2s for the years in question, and your employer will be required to pay the payroll taxes that he has been ILLEGALLY avoiding.

When you get the W-2s, file the amended returns and attach Form 8919 to calculate your share of the FICA and Medicare taxes. You will still have to pay them. But this will save you about half of the total tax that you currently owe.

The bottom line is that your "employer" is ripping YOU off as well as the rest of us taxpayers. You have to pay HIS payroll taxes on top of your own taxes. You also are NOT covered by Worker's Compensation laws and are NOT eligible for Unemployment Compensation if you lose your job.

Many taxpayers will gladly trade a 10% pay raise for IC status, however it takes nearly a 100% pay raise to be in the same position as an employee is after you take taxes, private healthcare coverage, Worker's Comp insurance, and savings towards periods of unemployment. The mere fact that you can't survive on your current pay if you pay your taxes should tell you something!

Don't let this JERK rip you off any longer! File that SS-8 with the IRS and make him pay his due.

Becoming an employee now doesn't take away from the fact that you owe self-employment taxes plus 2-3 years of penalties and interest for not paying the SE taxes timely. Contact the IRS or a tax preparer immediately to start getting right with the IRS. You want to stay in their good graces as much as possible. SE taxes are what the self employed individuals pay into their own medicare and social security because they don't have an employer to withhold it for them.

You write that you are "only paying income taxes and have never paid into any self employment tax", so that means you must have a W2 from someplace right? If you are paying income tax, it is on income but could it be self employment or SE tax that you are paying? If you have your taxes done by a tax professional, contact them and ask to review the last two years of tax returns. If you do them yourself or have a family friend do them or they're done from a store bought tax program, take the last two years worth of tax returns and seek the help of an EA (enrolled agent) who is a licensed tax professional.

If you are self employed, you are filing a Schedule C or sole proprietor form to attach to your Federal 1040 form. Against the self employment income, you should be taking expenses like tools, mileage, licenses, office expense, telephone etc., to offset the income, thereby lowering your self employment income and paying less tax. Look at your tax return, take it to a tax professional and get a better understanding of what tax you are paying each year and for what. Okay?

Getting a second or third opinion can only help to educate you on your tax return and all of its intricacies.