Self-Employment Tax
Self-employment tax is the 15.3 percent Social Security and Medicare tax the self-employed pay on 92.35 percent of net profit. It is 12.4 percent Social Security up to the annual wage base plus 2.9 percent Medicare with no cap.
Employees split FICA with their employer, 7.65 percent each. When you work for yourself you are both parties, so Schedule SE charges you both halves on your business profit. The math runs on net earnings, defined as 92.35 percent of your Schedule C net profit, and no SE tax is due at all when net earnings come in under $400 for the year.
Two built-in offsets keep the true cost below a flat 15.3 percent. The tax base is discounted to 92.35 percent of profit, and half of the SE tax is deductible against your income tax, mirroring how employees never pay income tax on the employer’s FICA half. If you also hold a W-2 job, those wages consume the Social Security wage base first, which can eliminate the 12.4 percent part on your side income. The self-employment tax calculator runs the full Schedule SE math and shows what share of each profit dollar to set aside.
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Related terms: FICA (Federal Insurance Contributions Act) , Social Security Wage Base , QBI Deduction (Qualified Business Income) , Medicare Tax
Last updated . Part of the FinExplained finance glossary .