Tax Dictionary – Self-Employment Tax

IRS Definition

Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.

More from H&R Block

Self-employment tax (SE tax) is made up of Social Security and Medicare taxes. If you earn self-employment income, reported on Form 1099-MISC, you must pay a 15.3% self-employment tax.  However, if you’re classified as an employee and earn wages reported on Form W-2, your employer pays half of your SE tax (7.65%). The remaining half is usually deducted from your paycheck.

You’re considered self-employed if you own your own business or the company you work for classifies you as an independent contractor. Because tax is usually not withheld from self-employment income (nonemployee compensation), you’re required to make estimated tax payments during the year to cover your federal income tax and SE tax.

Taxpayers sometimes don’t understand this rule, and end up with a notice from the IRS.

Learn how to address an IRS CP2000 notice.

Related Topics

Related Resources

IRS Letter 39 (LT39) – Reminder of Overdue Taxes, Offset of Overpayment

Learn about IRS Letter 39 (LT39), why you received it, and how to address overdue taxes. Get help from the tax experts at H&R Block.

IRS Notice CP30 – Your Refund Has Been Reduced

Learn more about notice CP30, why the IRS reduced your refund, and how to address the notice with help from the tax experts at H&R Block.

IRS Notice CP162 – We Charged You A Penalty

Learn more about notice CP162, why you received the notice, and your options to address an IRS penalty with help from the tax experts at H&R Block.

IRS Letter 3503C – Failure to File/Failure to Pay Penalty Abatement Request

Learn more about IRS Letter 3503C, why you received the letter, and what it means for you with help from the tax experts at H&R Block.