Self-Employment Tax Explainer

Self-Employment tax consists of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to Social Security and Medicare taxes withheld from the pay of most wage earners. Self-Employment taxes are applicable no matter one's age and even if one is already receiving Social Security or Medicare.

The Self-Employment tax rate is essentially 15.3% and includes two parts that are generally subject to 92.35% of one's net earnings from self-employment:

  • 12.4% for Social Security
  • 2.9% for Medicare

Note, however, the Social Security portion may only apply to a part of taxable income. That’s because of the Social Security wage base. For 2021, the first $142,800 of combined wages, tips, and net earnings is subject to any combination of the Social Security part of Self-Employment tax.

All combined wages, tips, and net earnings in the current year are subject to any combination of the 2.9% Medicare part of Self-Employment tax. There is no limit on the Medicare portion of self-employment tax, no matter how much is earned.

An additional Medicare tax rate of 0.9% (on top of the 2.9%) applies to self-employment income levels above the thresholds below:

  • Married filing jointly: $250,000
  • Married filing separately: $125,000
  • All other filing statuses: $200,000

The following individuals must pay self-employment tax and file a Schedule SE (Form 1040 or 1040-SR).

  • Self-employment net earnings (excluding church employee income) were $400 or more.
  • Church employee income was $108.28 or more.

Self-Employment taxes can be complicated - fortunately, Abound takes into consideration all of the logic described above into our tax calculations.


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