← Back to Glossary
Self-Employment Tax
Definition
Self-employment tax is the Social Security and Medicare taxes paid by self-employed individuals, covering both the employee and employer portions.
Explanation
Self-employed individuals must pay both the employee (7.65%) and employer (7.65%) portions of Social Security and Medicare taxes, totaling 15.3%. However, they can deduct half of this tax from their income tax. Self-employment tax applies to net earnings over $400.
Independent contractors, freelancers, and sole proprietors must calculate and pay self-employment tax quarterly using Schedule SE with their tax return.
Example
A freelancer earning $80,000 net pays $11,304 in self-employment tax (15.3% up to the Social Security wage base) but deducts $5,652.