Self-Employment Tax

Employees pay Social Security and Medicare taxes (collectively often referred to as FICA tax) through payroll withholding and the employer contributes a like amount for the employee. Since self-employed taxpayers do not have withholding, they pay an equivalent through what is called self-employment tax (SE tax). The tax is based upon the net profits from self-employment. For 2008, the rate is 15.3% of the first $102,000 of earnings and 2.9% on all earnings over that amount. The SE tax is included as “other” tax on Form 1040 and can be paid as part of the estimated tax installments the taxpayer makes.