Self Employment Tax

For a W-2 salaried employee, the employer and the employee split taxes for social security and medicare, with each paying 7.65% of the total salary, or 15.3% total (the employer typically withholds this amount from your paycheck and sends it to the government for you). If you are self-employed, you must pay a self-employment tax which is 15.3% (you’re paying the employer and employee portion, 7.65% x 2 = 15.3%). Of this, 12.4% goes to social security and 2.9% to medicare. These numbers can change slightly for higher income earners, as the 12.4% social security only applies to the first $142,800 of income for 2021. Note that the IRS lets you deduct the 7.65% “employer-equivalent” portion of your taxes from your income taxes.