Self-Employment Tax | Meaning and Definition

What is self-employment tax?

Self-employment tax is a tax to be paid by a self-employed individual or a freelancer or a sole proprietor to the federal government. The self-employment tax is for social security and medical care. Self-employed individuals are generally freelancers, independent contractors, or sole proprietors. This is otherwise meant for sole proprietors who otherwise don’t pay any withholding taxes. Generally, taxes paid by both companies and individuals will go towards the two social welfare programs. One is medical care, and the other is social security. Social security tax will generally be 6.2% for employees as well as for employers. Hence for a self-employed worker, the social security tax will be 12.4% as they are both an employee and an employer. Medicare tax will generally be 1.45% for employees as well as for employers. Hence for a self-employed worker, the social security tax will be 2.9.% as they are both an employee and an employer.

Self-employed individuals who earn less than 400$ per year will be exempted from paying the Self employment tax. If you earn money for working as an employee of someone, then you don’t have to pay self-employment tax, as the employer will pay the payroll taxes.

The Church employees who earn less than 108.28$ are exempted from paying the self-employment tax.

How do you report your self-employment tax to the Federal Government? – You need to file it through IRS form 1040 under SCHEDULE C, SCHEDULE SE. The income amount that you are paying as self-employment tax will be reported as other taxes.