The 15.3% tax that self-employed individuals pay to cover Social Security and Medicare.
Self-employment tax is essentially the self-employed person's equivalent of FICA taxes that W-2 employees share with their employer. Since you're both employer and employee, you pay both halves: 12.4% for Social Security (up to the wage base) and 2.9% for Medicare. The good news? You can deduct half of this tax from your gross income when calculating AGI.
On $100,000 net self-employment income, SE tax is approximately $14,130. You can deduct $7,065 (half) as an adjustment to income.
S-Corp election allows you to pay yourself a reasonable salary and take remaining profits as distributions, which aren't subject to SE tax. This can save 7-10% on income above your salary.
You pay SE tax on net self-employment income (after business deductions). Maximizing legitimate deductions reduces your SE tax liability.
AlphaTax helps self-employed professionals maximize tax savings with AI-powered expense tracking.
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