Income Tax Fundamentals and Calculations - Self-Employment Tax
The Self-Employment Tax is how someone working within their own business (like a self-employed independent contractor) pays Medicare and Social Security taxes from their pay. By working for yourself,- you act as both the employer and the employee, so a self-employed person pays 15.3% total tax (which is 7.65% as the employer and 7.65% as the employee). The tax is composed of a Social Security tax of 12.4% on the first $113,700 of net self-employment income for 2013 and a Medicare tax of 2.9% on all net self-employment income.
If you work as an employee of another firm or organization, the employer and employee split the cost of these payroll taxes, each paying 7.65% of eligible wages. In addition, you can take a deduction for the 6.2% employer's share of Social Security along with 1.45% employer's share of Medicare as an above-the-line deduction if you are self-employed.