Self-employment tax (SE tax) is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.
Employers are required to withhold half of the Social Security tax and half of the Medicare tax from each employee’s pay check. Employers share the Social Security and Medicare tax obligation equally with their employees. When you are self-employed, you are responsible for paying all of the Social Security tax and Medicare tax yourself. So instead of paying 7.65 percent and an employer paying the other 7.65 percent, you are required to pay the entire 15.3 percent.
You are self-employed if any of the following apply to you:
- You are issued a 1099 from an employer
- You carry on a trade or business as a sole proprietor or an independent contractor
- You are a member of a partnership that carries on a trade or business
- You are otherwise in business for yourself
For self-employment income earned in 2013, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security and 2.9% for Medicare. The self-employment tax rate for self-employment income earned in calendar years 2011 & 2012 was 13.3% (10.4% for Social Security and 2.9% for Medicare). The reduced Social Security rate for 2011 & 2012 was due to a temporary reduction in the Social Security tax rate implemented by the IRS as a “payroll tax holiday.”