Self-employment tax includes Social Security and Medicare taxes. Since self-employed individuals don’t receive traditional paychecks where taxes are deducted from each check, the self-employment tax replaces the traditional Social Security and Medicare withholding.
Use Schedule SE that accompanies Form 1040 or 1040-SR for tax filings. This schedule serves as a worksheet to calculate your self-employment tax.
Self-employed individuals who have a trade or business and operate as a sole proprietor or an independent contractor must pay self-employment tax. This tax is paid in addition to income tax paid by small business owners, freelancers, gig workers and more.
It’s possible to deduct a portion of your self-employment tax to offset some of your income tax. However, that does not affect self-employment net earnings or self-employment tax.
Your self-employment tax amount is recorded on your tax filing and becomes part of the overall calculations that will determine if you will owe money or if you will receive a refund.
Self-employed individuals can quickly face complex tax filings, which may lead them to miss out on deductions or benefits or even to file incorrectly and risk incurring fines.