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When figuring self-employment tax you owe, you get to reduce self-employment income by half of the self-employment tax before applying the tax rate. Say, for example, that your net self-employment income is $50,000. That's the amount you report as taxable for income tax purposes on Form 1040. But when figuring your self-employment tax on Schedule SE, Computation of Social Security Self-Employment Tax, the taxable amount is $46,175. Not paying the 15.3 percent tax on $3,225 difference in this example saves you $493.
1 If you are self-employed you generally have to pay self-employment tax as well as income tax. 2  Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves.3  It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. You figure self-employment tax using a Form 1040 Schedule SE. 2  Also, you can deduct an employer's equivalent portion of your self-employment tax in figuring your adjusted gross income. 3  In prior years, the deduction was equal to one-half of self-employment tax.