How do payroll taxes differ for self-employed individuals compared to traditional employees?

Self-employed individuals face unique payroll tax responsibilities compared to traditional employees. They are required to pay both the employee and employer portions of Social Security and Medicare taxes, which amounts to a combined rate of 15.3% on their net earnings. This is often referred to as self-employment tax.

In contrast, traditional employees only pay half of this amount (7.65%), as the employer is responsible for the other half. This distinction is significant because it essentially means that self-employed individuals bear the full burden of these taxes, making their overall tax liability higher in this regard.

Understanding this difference is crucial for self-employed individuals when calculating their tax obligations and planning for their financial future.