Self-employment tax is a type of tax that self-employed individuals must pay. Self-employment tax covers both the employee and employer portions of Social Security and Medicare taxes. The self-employment tax rate is 15.3%, which is divided into two parts: 12.4% for Social Security and 2.9% for Medicare. Self-employment tax is paid quarterly, along with estimated income tax payments.
Self-employment tax is important because it helps to fund Social Security and Medicare benefits. Social Security benefits provide retirement, disability, and survivor benefits to eligible individuals. Medicare benefits provide health insurance coverage to individuals aged 65 and older, as well as to younger individuals with certain disabilities. Self-employment tax has been in place since 1951, when it was enacted as part of the Social Security Amendments of 1950.
