Self-employment tax: the one that surprises everyone

This is the one nobody warns you about. At a job, your employer quietly paid half of your Social Security and Medicare. Now you're both the employer and the employee, so you cover both halves — about 15.3% of your net profit — on top of income tax. It's not a penalty; it's how you fund your own Social Security. Plan for it and it won't blindside you.

Do this

1. Know the number: self-employment tax is 15.3% of net profit — 12.4% Social Security + 2.9% Medicare.
2. It's on top of income tax, which is why a self-employed dollar is taxed more than a paycheck dollar.
3. You figure it on Schedule SE — and you get to deduct the 'employer half,' which softens the hit.
4. Fold that 15.3% into what you set aside from every payment (see the estimated-taxes lesson).

Why it feels like you're paying double

You kind of are — because you're now both sides of the paycheck:

As an EMPLOYEE, you always paid ...... 7.65% Your EMPLOYER quietly matched ........ 7.65% -------------------------------------------- On your own, you pay BOTH ............ 15.3%

The Social Security part (12.4%) only applies up to a yearly income limit the IRS resets each year; the Medicare part (2.9%) applies to all of it. This is why "set aside for taxes" has to cover income tax AND this.

(General info, not tax advice — check current IRS figures with a pro.)