What's the Difference Between Self-Employment Tax and Income Tax?

Self-employment tax and income tax are two separate taxes that self-employed people owe, and they're calculated differently. Income tax is based on your taxable income after deductions and applies to everyone who earns above a certain threshold, at rates ranging from 10% to 37%. Self-employment tax is an additional tax that covers your Social Security and Medicare contributions — the same taxes that employees pay through payroll, except employees split the cost with their employer. The self-employment tax rate is 15.3% on the first $168,600 of net self-employment income in 2024, plus 2.9% on income above that for Medicare. The good news is that you can deduct half of your self-employment tax when calculating your adjusted gross income, which partially offsets the cost.