Self-Employment Taxation

Self-employment tax is a federal tax that self-employed individuals must pay to cover Social Security and Medicare contributions. Unlike traditional employees, who have these taxes withheld from their paychecks, self-employed people must calculate and pay this tax themselves, typically based on their net income from their business. The self-employment tax rate is currently 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. It’s important for self-employed individuals to track their income and expenses accurately and make quarterly estimated tax payments to avoid penalties.