Self-Employment Tax

What is Self-Employment Tax?

Self-employment tax is a tax comprised of Medicare and Social Security taxes paid by self-employed individuals. This the same tax that is paid on salary-based income.

When you receive W-2 salary and wages as income, Social Security and Medicare is withheld from your paycheck and remitted to the IRS at the rates of 6.2% Social Security and 1.45% Medicare for a total of 7.65% tax. Your employer also remits an amount of their own funding to the IRS of the same 7.65% as an employer match. A total of 15.3% tax is remitted to the IRS in combination.

When you earn income as a self-employed individual or as a partner in a partnership, there is no employer to remit half your Social Security and Medicare tax or withhold your portion. You are responsible for the 15.3%. This is calculated on your tax return via Schedule SE.

What income is subject to self-employment tax?

Generally, any income earned for a profit or for a livelihood of $400 or more is subject to this tax. Some exceptions may apply.

Additional Medicare Tax

 There is an additional 0.9% Medicare tax for any self-employed income over $200,000. 

Deduction 

There is a deduction from federal income taxes of 50% of the self-employment tax owed in any given year.

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