Self-employment tax is the Social Security and Medicare tax paid by individuals who work for themselves. Unlike employees who split these taxes with their employer, self-employed individuals pay both the employer and employee portions — a combined rate of 15.3% (12.4% for Social Security up to the wage base limit and 2.9% for Medicare). Half of the self-employment tax is deductible as an above-the-line deduction.
Self-Employment Tax
Definition
Self-employment tax is the Social Security and Medicare tax paid by individuals who work for themselves. Unlike employees who split these taxes with their employer, self-employed individuals pay both the employer and employee portions — a combined rate of 15.3% (12.4% for Social Security up to the wage base limit and 2.9% for Medicare). Half of the self-employment tax is deductible as an above-the-line deduction.
Example
A freelancer with $100,000 in net self-employment income would owe approximately $14,130 in self-employment tax (92.35% × $100,000 × 15.3%), but can deduct half ($7,065) from their AGI.
Key Points
- 1Combined rate of 15.3% (Social Security + Medicare)
- 2Self-employed pay both employer and employee portions
- 3Half is deductible as an above-the-line deduction
- 4Applies to net self-employment income over $400
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