Self-Employment Tax
The combined Social Security (12.4%) and Medicare (2.9%) tax paid by self-employed individuals — effectively both the employee and employer shares of FICA, totaling 15.3%.
Self-employment tax is the equivalent of FICA for people who work for themselves — freelancers, independent contractors, sole proprietors, and partners. Since there is no employer to pay half, self-employed workers pay both shares: 12.4% for Social Security and 2.9% for Medicare, totaling 15.3%.
The tax applies to net self-employment earnings of $400 or more. Before calculating the tax, you multiply net earnings by 92.35% (0.9235) to approximate the amount that would be considered wages. This adjustment accounts for the fact that employees do not pay FICA on the employer's share.
The IRS lets you deduct the employer-equivalent half of self-employment tax (7.65% of the SE tax base) as an above-the-line deduction, which reduces your AGI and income tax. Self-employment tax is calculated on Schedule SE and paid along with your income tax when you file your return.
Related Terms
FICA
Federal Insurance Contributions Act taxes that fund Social Security (6.2%) and Medicare (1.45%). Both employees and employers pay FICA, totaling 15.3% on wages.
SE Tax Base (92.35%)
Self-employment tax is calculated on 92.35% of net self-employment income, not the full amount. This adjustment mirrors the fact that employees do not pay FICA on the employer's share.
Schedule C
The IRS form (Schedule C of Form 1040) used by sole proprietors and single-member LLCs to report business income and expenses. The net profit flows to your personal tax return.
Quarterly Estimated Tax
Tax payments made four times a year by self-employed individuals and others with income not subject to withholding. Due dates are April 15, June 15, September 15, and January 15.
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