What does the term "self-employment tax" refer to?

The term "self-employment tax" specifically refers to the Social Security and Medicare taxes that self-employed individuals are required to pay on their net earnings. Unlike employees, who have these taxes withheld from their wages by their employers, self-employed individuals must calculate and remit these taxes themselves. The self-employment tax rate is effectively the combined rate of Social Security and Medicare taxes that would be withheld if the individual were employed.

This tax is important because it ensures that self-employed individuals contribute to the same programs that employee wages fund, thereby granting them eligibility for benefits such as retirement and healthcare coverage under Social Security. The other options do not relate to the concept of self-employment tax; they refer to different types of taxes that apply in different contexts, such as those on investments, wages, and capital gains.