Self Employment Tax

[self em-PLOY-ment taks]

What is the definition of Self Employment Tax?

A tax primarily for individuals who work for themselves, such as sole proprietors, partners, and independent contractors. It covers contributions for Social Security (OASDI) and Medicare (HI), similar to taxes withheld by employers from employee wages.

Using Self Employment Tax in an Example

A freelance graphic designer must calculate and pay self employment taxes on their income to cover Social Security and Medicare, which would otherwise be partially handled by an employer in a traditional employment setting.

Using Self Employment Tax in a sentence

When I started working as a freelancer, I had to learn how to manage my self employment tax to ensure I was covered for Social Security and Medicare.

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