Federal tax
Self-employment tax
Self-employment tax is the Social Security and Medicare tax that people who work for themselves pay on their net earnings.
Employees split Social Security and Medicare tax with their employer. Self-employed people pay both halves. The IRS lists the self-employment rate as 15.3 percent, made of 12.4 percent for Social Security and 2.9 percent for Medicare. The Social Security part stops at a yearly wage base, which the IRS changes each year.
This tax is separate from income tax. Sole proprietors and partners pay it, so they often send estimated tax payments. An S corporation owner pays payroll tax on a salary instead, which must be reasonable. The S corp, LLC and sole proprietor guide compares the choices.
Related terms
Sources
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