<topic sku="core" tNum="289584" author="sallyh" xmlns="x-schema:hhTopicSchema.xml"><index><title>Learn about self-employment tax</title><category>tax</category><klink type="cncpt">Tell me about self-employment tax</klink></index>
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<p>Self-employment tax is the Social Security and Medicare tax you pay if you are self-employed. When you work as an employee, your employer withholds 7.65 percent of your pay for Social Security and Medicare tax and pays a matching 7.65 percent with it. When you work in your own business, however, you pay the entire 15.3 percent yourself.</p>
<p>If you have net earnings from a trade or business of $433.13 or more in 2001, you are generally subject to self-employment tax. Your trade or business may be a sole proprietorship, a partnership in which you are a working partner, or a farm. You also must pay self-employment tax if you have church employee income of $108.28 or more that is exempt from employer Social Security and Medicare taxes.</p>
<p>If you are married, you and your spouse each pay self-employment tax separately on any self-employment income. If you and your spouse own a business, the spouse who actually carries on the business pays the self-employment tax.</p>
<p>Your self-employment tax consists of two parts: Social Security tax and Medicare tax. Before calculating either tax, your total self-employment income from all sources is multiplied by 92.35 percent. This is an adjustment to make up for the fact that employed taxpayers have half of their Social Security tax and Medicare tax paid by their employer, which has the effect of lowering their income that is subject to Social Security tax and Medicare tax.</p>
<p>You pay 12.4 percent Social Security tax on the resulting "net income from self-employment," up to a maximum income of $80,400 (in 2001). If you also work as an employee, the maximum amount of self-employment income you pay Social Security tax on is reduced by your Social Security wages and tips.</p>
<p>You pay 2.9 percent Medicare tax on your net income from self-employment. There is no limit for the amount of income on which you pay Medicare tax.</p>
<p>Your combined Social Security tax and Medicare tax is your total self-employment tax. One-half of your self-employment tax is allowed as an adjustment to your taxable income.</p>
<p> For more information, see IRS Publication 533, Self-Employment Tax, on the <alink type="xtnl" href="http://www.irs.gov">IRS Web site</alink>.</p>
