10 Tax Questions Self-Employed Clients Might Ask

6. Who is required to pay the self-employment tax?

An individual who has annual net earnings from self-employment of $400 or more is subject to self-employment tax. Generally, sole proprietors, single-member LLCs treated as a disregarded entity, and general partners are considered to be self-employed. Self-employment tax is reported on Schedule SE attached to Form 1040. However, a self-employed taxpayer is entitled to an above-the-line deduction equal to one-half of the self-employment tax paid.

In essence, self-employment tax is the combination of Social Security tax and Medicare tax. The Social Security tax rate is 12.4% and the Medicare tax rate is 2.9%. For 2022, Social Security taxes apply only to the first $147,000 of self-employment income. If the taxpayer has both wages and self-employment income, the amount of self-employment income subject to the Social Security tax is the difference between the cap amount and the amount of the taxpayer’s wages.