What Does Self-Employment Tax Actually Pay For?

What does Self-Employment tax actually pay for? If you’re an entrepreneur you’ve likely asked yourself this question, probably more than once! It might seem like a big pain at first, just another irritating task to deal with in running a business.

BUT, here’s the deal with Self-Employment Tax: it pays into a system that you were already paying into when (or if) you were an employee.

Here’s how that works…

Let’s say that you work for a company. The company you work for pays payroll taxes as a company, and you also pay payroll taxes as an employee. This money goes on to fund things like Medicare, Social Security, Unemployment Insurance, Family Paid Medical Leave, and other such government programs that are available when you need them.

The difference is that when you’re a corporate employee, those taxes come right out of your paycheck, and you probably didn’t notice that much!

However, when you’re an entrepreneur, you’re responsible for EVERY part of your business, from marketing to money management to taxes. Self-employment tax is just another thing that your former place of employment used to take care of for you. As an entrepreneur, it’s on you now. (Get more specifics directly from the IRS here!)

So, if your business is an LLC or a Sole Proprietorship and you have a net income, Self-Employment Tax is how your business helps subsidize Medicare, Social Security, and other such programs.

In this case it’s not a tax for being profitable, but it actually has a specific purpose that might benefit you at some point.

I give you a quick run-down right HERE: ⬇️ ⬇️ ⬇️

So that is the specific purpose of Self-Employment Tax! I hope that this helps you understand a bit better where that money goes and why.

What questions do you have about Self-Employment Tax, how it works, and what it does for you? Leave me a comment and let me know!

Until Next Time,

Love, Light, and MONEY, Honey…

Kaylee