What is Self-Employment Tax?
The IRS has stated that "Self-employment tax (SE tax) is a Social Security and Medicare tax 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."
Taxpayers can calculate their SE tax using Schedule SE (Form 1040). Social security and Medicare taxes of most wage earners are figured by their employers. Also Taxpayers can deduct half of their SE tax in figuring their adjusted gross income. Wage earners cannot deduct social security and Medicare taxes.
SE tax rate.
The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).
Maximum earnings subject to SE tax for Tax Year 2009.
Only the first $106,800 of the taxpayers combined wages, tips, and net earnings in 2009 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax.