Self-Employment Tax
Self-Employment Tax is a tax primarily for individuals who work for themselves, like freelancers or small business owners. It covers Social Security and Medicare taxes, similar to what employees pay through their employers. When you earn income through self-employment, you are responsible for both the employee and employer portions of these taxes, totaling about 15.3% on your net earnings. This tax ensures that self-employed individuals are contributing to federal social insurance programs, which provide benefits for retirement, disability, and medical care. It's important to keep track of earnings and expenses for accurate tax reporting.
Additional Insights
-
Self-employment tax is a tax that individuals who work for themselves must pay to cover Social Security and Medicare contributions. Unlike traditional employees, self-employed individuals don’t have these taxes withheld from their paychecks. The current self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. Self-employed people report this tax when filing their annual income tax returns and can deduct half of the self-employment tax from their taxable income, helping to lessen the overall tax burden. It's an important part of ensuring access to social safety nets for self-employed individuals.