Self Employment Tax

About Self Employment Tax

Self employed individuals pay both the employer and employee portions of FICA, totaling 15.3 percent on net earnings up to the Social Security wage base. This is in addition to regular income tax. The effective tax rate on self employment income can exceed 40 percent when combined with federal and state income taxes. Self employed individuals can deduct the employer portion of the tax, partially offsetting the burden. The gig economy has increased the number of self employed workers facing this tax. Many gig workers are surprised by the large tax bill at tax time. Quarterly estimated tax payments are required to avoid underpayment penalties. The self employment tax is a significant barrier to entrepreneurship and small business formation.