Self-Employment Tax The self-employment tax (SE tax) is a social security and Medicaretax for individuals who work for themselves. It is similar to thesocial security and Medicare taxes withheld from the pay of wageearners. Social security coverage.Your payments of SE tax contribute to your coverage under thesocial security system. Social security coverage provides you withretirement benefits, disability benefits, survivor benefits, andhospital insurance (Medicare) benefits. Social security benefits areavailable to self-employed persons just as they are to wage earners. Who is insured under social security?You must be insured under the social security system before youbegin receiving social security benefits. You are insured if you havethe required number of credits (also called quarters of coverage,discussed next). Credits.For 1999, you received one credit, up to a maximum of four credits,for each $740 ($780 for 2000) of income subject to social security.Therefore, for 1999, if you had income of $2,960 that was subject tosocial security taxes (self-employment and wages), you received fourcredits ($2,960 $740). For an explanation of the number of credits you must have to beinsured, and of the benefits available to you and your family underthe social security program, consult your nearest Social SecurityAdministration office. Caution: Making false statements to get or to increase social securitybenefits may subject you to penalties. Social Security Administration (SSA) time limit for postingself-employment income.Generally, the SSA will give you credit only for self-employmentincome reported on a tax return filed within 3 years, 3 months, and 15days after the year you earned the income. If you file your tax returnor report a change in your self-employment income after this timelimit, the SSA may change its records, but only to remove or reducethe amount. The SSA will not increase the amount of yourself-employment income. Who must pay self-employment tax.You must pay SE tax and file Schedule SE if either of the followingapplies. Your net earnings from self-employment (excluding incomedescribed in (2) below) were $400 or more. You performed services for a church as an employee andreceived income of $108.28 or more. Caution: If you earned income as a statutory employee, you do not pay SE taxon that income.    SE tax rate.The SE tax rate is 15.3% (12.4% social security tax plus 2.9%Medicare tax). The maximum amount of net earnings subject to thesocial security part for 1999 is $72,600. All of your net earnings aresubject to the Medicare part. Use Schedule SE (Form 1040) to figure your SE tax. More information.For more information on the SE tax, see Publication 533,Self-Employment Tax. TaxTip: Deduct one-half of your SE tax as an adjustment to income on line27 of Form 1040.