Self-Employment Tax
Definition
The Social Security and Medicare tax paid by self-employed individuals. Since self-employed people are both employer and employee, they pay the full 15.3% (12.4% Social Security + 2.9% Medicare) on net earnings. You can deduct half of self-employment tax as an adjustment to income. The tax applies to net self-employment income of $400 or more.
Example
On $80,000 of net self-employment income, your self-employment tax would be approximately $11,304. You can deduct $5,652 (half) when calculating your AGI.
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