What is the self-employment tax rate applied to net earnings from self-employment?

The self-employment tax rate applied to net earnings from self-employment is 15.3%. This rate comprises two components: 12.4% for Social Security and 2.9% for Medicare.

Self-employed individuals are responsible for paying both the employee and employer sides of these taxes, which is why the percentage is higher than the rate that employed individuals pay, where typically only half of the self-employment taxes are withheld from wages. Specifically, the 12.4% Social Security tax applies to net earnings up to a certain income threshold known as the wage base limit, while the 2.9% Medicare tax applies to all net earnings, with an additional 0.9% surtax on earnings above a certain threshold.

Understanding this tax structure is important for individuals engaged in self-employment as it directly impacts their overall tax liability and financial planning.