In short
Self-employment tax is the Social Security and Medicare tax paid by self-employed people on their net earnings, equivalent to both the employer's and employee's share of payroll taxes: 15.3% on 92.35% of net earnings, with the Social Security part capped at the annual wage base.
Key takeaways
- Half of it is deductible in computing adjusted gross income.
- An additional 0.9% Medicare tax applies to earnings above a threshold.
- General partners pay it on their distributive share of business income; S corporation shareholders don't pay it on distributions.
Where it's tested
REG: Employee Benefits & Payroll Tax — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In computing self-employment tax, net earnings from self-employment are first multiplied by: