Self-Employment Tax

Self-Employment Tax refers to the tax that self-employed individuals must pay, which consists of Social Security and Medicare taxes. Unlike traditional employees, who have these taxes withheld from their paychecks by their employers, self-employed individuals are responsible for calculating and paying these taxes themselves. The self-employment tax is generally calculated on the net earnings from self-employment, which is the income received from business activities after deducting eligible business expenses. The current self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. Self-employed individuals can deduct the employer-equivalent portion of your self-employment tax when calculating their adjusted gross income, which is half of the total self-employment tax paid. This tax is reported on Schedule SE of the IRS Form 1040 during tax filing, and it applies to individuals who earn $400 or more in self-employment income during the tax year. The self-employment tax ensures that self-employed individuals contribute to the social insurance system and have access to benefits such as retirement and healthcare.