Self-Employment Tax Rate
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Self-Employment Tax is a tax paid by self-employed individuals to cover Social Security and Medicare contributions.
In depth
Self-Employment Tax applies to individuals who work for themselves, including founders of early-stage businesses. In the US, it covers Social Security and Medicare taxes that would normally be split between employer and employee. The combined rate is typically 15.3% on net earnings, though only a portion may be subject to Social Security limits. This tax is calculated on business income and is in addition to regular income tax. Understanding self-employment tax is important for founders when planning compensation and managing cash flow.
Example
Let’s consider a real-world example of a founder calculating self-employment tax.
Net earnings: $100,000
Tax rate: 15.3%
Self-Employment Tax = $100,000 × 15.3% = $15,300
This amount is paid toward Social Security and Medicare.