Self-Employment Tax

Category: tax

The tax paid by independent contractors and small business owners to fund Social Security and Medicare.

Employees only pay half of their Social Security and Medicare taxes (the employer pays the other half). When you are self-employed, you must pay *both halves*. This 15.3% "Self-Employment Tax" is a major surprise for people who switch from W-2 employment to 1099 freelancing.

Common Examples

• As a freelance consultant, I must set aside roughly 15% of my gross income to cover the mandatory self-employment tax.
• The self-employment tax is calculated on Schedule SE and is required for anyone earning more than $400 via 1099-contract work.