Guide to Self-Employment Taxes: Social Security, Medicare, and More

Self-employment taxes consist of Social Security and Medicare taxes that self-employed individuals are required to pay. These taxes are similar to the taxes withheld from the pay of most wage earners. However, when you're self-employed, you are responsible for both the employer and employee portions of these taxes, known as the self-employment tax.

Self-employment tax is calculated based on your net earnings from self-employment. It is important to note that these taxes are in addition to your regular income tax. The self-employment tax rate is 15.3%, which is the combined rate for Social Security (12.4%) and Medicare (2.9%) taxes. For 2021, the Social Security portion applies to the first $142,800 of your net earnings.

Self-employed individuals need to report their self-employment taxes on Schedule SE (Form 1040). It's essential to understand the tax implications of self-employment and plan accordingly to meet your tax obligations.