You owe because you have to pay self-employment taxes, on the money you earn. Self-employment tax and income tax are two separate taxes. You can owe self-employment tax even if you don't need to pay income tax.
- Self-employment tax (SE tax) is the Social Security and Medicare tax paid by self-employed individuals.
- It is similar to FICA which is the Social Security and Medicare taxes withheld from an employee’s paycheck.
- If you’re self-employed, you can claim a federal deduction for half the SE tax you pay, which can help lower your taxes.
- We report your SE tax on Schedule SE and also calculate the deduction that goes along with it.
- The SE tax rate is 15.3% with 12.4% for Social Security and 2.9% for Medicare.
When you’re self-employed, you are paid the full amount you earn. Nothing is deducted from your check for Social Security and Medicare taxes. Instead, you make estimated tax payments during the year to pay your SE tax and your income tax. If you don’t make estimated tax payments, then you pay these taxes when you file your return.
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