What Is Self-Employment Tax?


Quick Answer

Self-employment tax consists of Social Security and Medicare taxes, mostly from people who work for themselves, according to the Internal Revenue Service. It is the same as the Social Security and Medicare taxes deducted from a person's paycheck.

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Full Answer

People who must pay self-employment tax earned at least $400 or had $108.28 of employee income from a church, states the IRS. To figure out self-employment taxes, those who are self-employed as sole proprietors or independent contractors use Schedule C or Schedule C-EZ; this is different from most wage earners whose taxes are calculated by their employers.

Self-employment rules apply to all people, even those who are older and those receiving Social Security and Medicare, explains the IRS. Caregivers for the elderly or disabled have special rules regarding self-employment taxes; they are typically considered employees of the people to whom they offer their services, since the elderly and disabled have the right to direct them on what to do.

To pay self-employment taxes, an individual must have a Social Security number or an individual taxpayer identification number, says the IRS. ITIN is for nonresidents or resident aliens who do not qualify for Social Security. A person can calculate his employer-equivalent portion of his self-employment taxes by calculating his adjusted gross income. An employer-equivalent portion does not have an effect on net earnings from self-employment or the self-employment tax.

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