Job News | Self-Employment Tax (Se Tax)

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What is Self-Employment Tax?

Self-employment tax (SE Tax) is the social security and medicare taxes levied on self-employed individuals (individuals who work for themselves). This is a must-pay tax in order for you to be eligible for benefits upon retirement.

SE Tax is a “pay-as-you-go tax” or tax that must be paid as you earn and receive income during the year. If you expect to owe federal income tax, including SE tax of $1,000 or more, you are required to make estimated tax payments when you file your return.

Compute your SE tax using Schedule SE which is your Form 1040. You can also calculate it using a self-employment tax calculator to estimate your SE taxes due.

Self-Employment Tax Rate

The self-employment tax rate is 15.3% which is divided into two parts:

12.4% for social security (seniors, survivors, and disability insurance)

While all earnings and net profit in 2009 are subject to the 2.9% health/medical care part of SE tax, only the first $106,800 of your total wages (including tips) and net profit in 2009 is subject to the 12.4% social security part of SE tax.

SE Tax as an Income Tax Deduction

Half of your self-employment tax is a tax deduction from your end-of-year taxable income. This deduction does not affect your self-employment net earnings or your SE tax.

While a self-employed individual can deduct 50% of his SE Tax to figure his adjusted gross income, wage earners are not entitled to social security and medicare income tax deductions.

Payment of Self-Employment Tax

It is required that you hold a social security number (SSN) or a taxpayer’s ID number (ITIN) to pay SE tax.

You can obtain a social security number by applying for one using the SS-5 Form. This form is available at any Social Security office or you can call (800) 772-1213. You can also download the form the Social Security Online Website.

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