Question 1

What is self-employment tax?

Accepted Answer

Self-employment (SE) tax covers Social Security and Medicare taxes for people who work for themselves. Unlike W-2 employees who split FICA with their employer, self-employed individuals pay both halves — 12.4% for Social Security (up to the wage base) and 2.9% for Medicare, totaling 15.3% on 92.35% of net self-employment income.

Question 2

How do quarterly estimated tax payments work?

Accepted Answer

Self-employed individuals must make quarterly estimated tax payments to the IRS (Form 1040-ES) if they expect to owe $1,000 or more in taxes for the year. Payments are due April 15, June 15, September 15, and January 15 of the following year. Missing payments may result in an underpayment penalty.

Question 3

How much more tax do self-employed people pay compared to W-2 employees?

Accepted Answer

At the same income level, a self-employed person pays roughly 7.65% more in payroll taxes than a W-2 employee, because they cover both the employee and employer portions of FICA. However, the self-employed can deduct 50% of their SE tax from adjusted gross income, which partially offsets the difference.

Self-Employment Tax

Your Business

Self-Employment Tax

Federal Income Tax

Total Tax

Effective Rate

Quarterly Estimate

Extra vs W-2

1099 vs W-2 Tax Comparison