What is the Social Security Tax?

4. Self-Employed Individuals and Social Security Tax

Since the IRS considers self-employed individuals both employee and employer, self-employed people are expected to pay 12.4 percent or the full Social Security rate (both employer and employee amounts). This tax rate applies to net earnings up to the current wage limit. Additionally, self-employment taxes are comprised of the Medicare tax and the Social Security tax. Unless self-employed individuals take Social Security tax out of their earnings, they may not accumulate enough credits to be eligible for retirement benefits when it comes time for them to apply.

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