Why it matters
A self-employed client does not have an employer withholding half of Social Security and Medicare. The tax can be a large part of the annual bill, and it is easy to miss when the client only saves for income tax.
Example
A sole proprietor reports $80,000 of net profit on Schedule C. The preparer calculates self-employment tax on Schedule SE, then reports the deductible employer-equivalent portion on the return.
Related terms
Questions about Self-employment tax
Is self-employment tax the same as income tax?
No. Self-employment tax funds Social Security and Medicare. Income tax is a separate calculation on the same return, and the two are added together.
Can a self-employed person deduct self-employment tax?
The taxpayer can generally deduct the employer-equivalent portion of self-employment tax when calculating adjusted gross income. The deduction does not reduce the self-employment tax itself.