FAQ: What is self-employment tax?

Self-employment tax is a tax combining Social Security and Medicare taxes due on net self-employment income.  It is similar to Social Security and Medicare taxes withheld from pay of most wage earners.

So how do you figure your self-employment (SE) tax?  Using form 1040 and Schedule SE, you will find instructions for calculating and claiming the deduction and how this figures into your adjusted gross income.  This calculation affects only your income tax – it does not affect either your net earnings from self-employment.

So how does this relate to health insurance?  One of the moving parts of Obamacare health plans involve a handful of deductions that one can include on their health insurance application to maximize their tax credit.  This calculated deduction (SE tax) can be used by self-employed individuals to lower the gross income calculation, thus increasing the potential tax credits availalble through the state exchange to help lower health premiums.

For clarity, and verification on numerical values, we advise phoning your accountant.

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