What Is Self-Employment Tax?
Self-employment tax is a tax consisting of Social Security and Medicare taxes, primarily for individuals who work for themselves as independent contractors. Independent contractors are considered a small business operation in the eyes of the IRS. These taxes are similar to the Social Security and Medicare taxes withheld from the pay of most W-2 wage earners.
Social Security and Medicare taxes of most wage earners are figured by their employers. But independent contractors will have to figure out their own taxes using the self-employment (SE) form (Schedule SE, Form 1040) that is based on the profits of the company. Also you can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income on your personal tax return. W-2 wage earners cannot deduct Social Security and Medicare taxes on their personal tax returns. This is an IRS rule for the self-employed workers only.
Self-Employment Tax Rate
The self-employment tax rate is 15.3 percent. The rate consists of two parts: 12.4 percent for Social Security (old age, survivors, and disability insurance) and 2.9 percent for Medicare (hospital insurance).
The amount for 2019 is $132,900. (For SE tax rates for a prior year, refer to the Schedule SE for that year).
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