Self-Employment Tax: What Does It Mean?
Self-employment tax is the Social Security and Medicare tax paid by individuals who work for themselves — freelancers, sole proprietors, independent contractors, and small business owners. Employees have these taxes split with their employer (each paying 7.65%), but self-employed individuals pay the full 15.3% (12.4% for Social Security on income up to the annual wage base, plus 2.9% for Medicare on all net self-employment income). Self-employed individuals can deduct half of their self-employment tax on their income tax return, reducing their adjusted gross income.
