Self-Employment Tax

Employees pay Social Security and Medicare taxes (collectively often referred to as FICA tax) through payroll withholding and the employer contributes a like amount for the employee. Since self-employed taxpayers do not have withholding, they pay an equivalent through what is called self-employment tax (SE tax). The tax is based upon the net profits from self-employment. For 2017, the rate is 15.3% of the first $127,200 (up from $118,500 in 2016) of earnings and 2.9% on all earnings over that amount. The SE tax is included as “other” tax on Form 1040 and can be paid as part of the estimated tax installments the taxpayer makes. An additional 0.9% rate applies to the Medicare portion of the SE tax when earned income exceeds certain thresholds – see the tax term “FICA.”