Self-Employment Tax

Self-Employment Tax refers to the tax that self-employed individuals must pay to cover Social Security and Medicare taxes. It is primarily applicable to individuals who work for themselves, such as freelancers, independent contractors, and small business owners.

The self-employment tax rate is currently set at 15.3%, which consists of two parts: 12.4% for Social Security and 2.9% for Medicare. Self-employed individuals must calculate their net earnings from self-employment and report it on their tax returns using Schedule SE (Form 1040).

For example, if a self-employed individual earns $50,000 in net income, they would be responsible for paying approximately $7,650 in self-employment taxes. Additionally, self-employed individuals may deduct the employer-equivalent portion of the self-employment tax (50%) from their taxable income, which can help reduce their overall income tax liability.