What are the Self Employment Taxes?

Self-employment taxes refer to the Social Security and Medicare taxes that are paid by employees and business owners. The amounts are 12.4% for Social Security and 2.9% for Medicare. If you are an employee of a business, half of these taxes (7.65%) are paid by you out of your wages, and the other half (7.65%) is covered by the business.

If you are self-employed, you owe taxes for both halves (all 15.3%), but you do get a tax deduction for the employer portion of the tax.

With an S-corporation, you only pay self-employment taxes on your reasonable compensation taken as payroll. This means you save tax on any amount of profit from the business that isn’t taken as payroll.