Self-Employment Tax
The Social Security and Medicare tax self-employed people pay on net earnings, covering both the employee and employer halves.
Self-employment tax is how self-employed people fund Social Security and Medicare. An employee splits these payroll taxes with their employer; a self-employed person pays both halves on their net self-employment earnings. The Social Security portion applies up to an annual wage base; the Medicare portion has no cap.
You can deduct half of your self-employment tax in computing AGI, which softens the blow. Because the combined rate is meaningful, self-employed income should be modeled with this tax included — projecting it like ordinary W-2 wages understates the true tax owed.
This definition is general information to help you understand a term, not financial, tax, or legal advice. Figures that change year to year (limits, thresholds, rates) should be confirmed against current official sources. For guidance on your situation, a licensed fee-only fiduciary is the right next step.