How is Self-Employment Tax calculated?
An employee has 7.65% of their wages withheld for Social Security and Medicare. Every employer also matches this dollar amount, making the total Social Security and Medicare paid equal to 15.3% of an employee’s wages. As a self-employed individual is both the employer AND the employee, the IRS makes the Self-Employment Tax double the rate withheld from employees, or rather the total 15.3%. However, instead of being calculated on gross wages-as in the case of an employee-Self-Employment Tax is based on net earnings from self-employment. This means that all business expenses are deducted prior to calculating the 15.3%, thus making the tracking and deduction of business expenses that much more valuable.
