Self-Employment Tax Basics

Self-employment tax generally covers Social Security and Medicare taxes for people who work for themselves. It is separate from regular income tax, which means a side business can create more tax than expected.

Net profit is the starting point

Self-employment tax is generally based on business profit, not gross revenue. Accurate expense tracking is important because ordinary and necessary business expenses may reduce taxable profit.

Estimated payments

If withholding does not cover your tax, you may need to make estimated tax payments during the year. Missing payments can lead to penalties even if you pay when filing the annual return.

Recordkeeping

Keep invoices, receipts, mileage records, payment processor reports, and bank statements. Good records make tax filing easier and reduce stress if questions arise later.