What it is
When you have a job, your employer takes 7.65% of your pay for Social Security and Medicare and pays another 7.65% itself. When you work for yourself, you pay both halves: 15.3%. That's self-employment tax, and it's due on top of income tax.
How it's worked out
- Start with your net profit: business income minus business expenses.
- Multiply by 92.35%. That's the part that gets taxed (it mirrors the employer half being tax-free for employees).
- 12.4% goes to Social Security, up to the year's wage limit. 2.9% goes to Medicare, with no limit.
- Above $200,000 ($250,000 married filing jointly), another 0.9% Medicare applies.
The good part
Half of it comes off your income before income tax is worked out. And every business expense you record lowers it, which is why missed receipts and uncounted card fees cost you twice.
Paying it during the year? The quarterly tax calculator includes it along with income tax.