What is self-employment tax?
Self-employment tax (definition)
Self-employment tax is the name given to Social Security and Medicare taxes when paid by a self-employed person. For employees, the employer shares the cost of these two taxes with the employee. But self-employed workers have to pay both shares.
If your net earnings as a self-employed person are $400 or more during the tax year, you have to pay self-employment tax. The employer half of the self-employment tax is a tax-deductible expense that you can claim separately on your income tax.
Self-employment tax rate breakdown
The self-employment tax rate is 15.3%.
What tax forms to use for self-employment tax
Schedule C of the IRS Form 1040 is used to report self-employed business income or loss. Self-employment tax is calculated on Schedule SE of the same form. The tax is paid quarterly using Form 1040-ES if the estimated liability exceeds $1000.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.