What is self-employment tax?

Self-employment tax is an income tax, separate and apart from regular income tax liability, which is charged to people who do not work for a direct employer, such as those who maintain a sole proprietorship or who work as independent contractors. This self-employment tax is actually comprised of two separate taxes - a Social Security tax and a Medicare tax.

If you had self-employment earnings of more than $400 for the 2006 tax year, you have to pay self-employment tax regardless of whether this is your sole income or simply a secondary amount of income to supplement your main source of income. Once you have calculated your self-employment income on Schedule C, you can use Schedule SE to calculate how much self-employment tax you owe.