What is Self-Employment Tax?
The ~15.3% tax self-employed people pay to cover both halves of Social Security and Medicare.
When you have a normal job, your employer quietly pays half of your Social Security and Medicare taxes. When you're self-employed, you're both the employer and the employee — so you pay both halves, roughly 15.3% of your net earnings, on top of income tax.
This is the nasty surprise for new business owners: your tax bill is bigger than you expect because of this extra layer.
It's also the entire reason the S-corp election exists — done right, it can legally reduce how much of your income is exposed to this tax.
Related terms
Definitions from the Business Dog Glossary — educational, occasionally satirical, never financial advice.