What is Self-Employment Tax? Definition, requirements, and how it applies to your business formation. Learn everything about self-employment tax for LLCs and corporations.
# Self-Employment Tax
Self-employment tax is the Social Security and Medicare tax that self-employed individuals pay on their net business income. The combined rate is 15.3% (12.4% Social Security on income up to $168,600 in 2024, plus 2.9% Medicare on all income). This is in addition to regular income tax.
Employees split this tax with their employer (each paying 7.65%), but self-employed individuals pay both halves. The S-Corp election is the primary strategy for reducing self-employment tax — distributions above reasonable salary are exempt.
Lovie's entity selection guidance factors in self-employment tax savings, recommending S-Corp election when net income makes the administrative overhead worthwhile.