Important Notes for Employers • This information applies only to businesses with employees .
• Sole proprietors and partners who work in the business are not considered employees for unemployment tax and workers’ comp purposes, but they do pay Social Security and Medicare self-employment tax. • Shareholders who work for C or S corporations are usually considered employees and must pay employment taxes. These shareholders generally must also have workers’ compensation coverage. Self-Employment Tax (SE Tax) • The self-employment tax covers Social Security and Medicare taxes for those who work for themselves (sole proprietors, partners, LLC members). • It is similar to the FICA taxes withheld from employees but is paid by self-employed individuals directly. • You calculate SE tax using Schedule SE (1040) , Self Employment Tax. • Half of your SE tax can be deducted when calculating your adjusted gross income. • The SE tax rate is 15.3 percent , composed of: • 12.4 percent Social Security tax (on the first $184,500 of combined wages, tips, and net earnings for 2026) • 2.9 percent Medicare tax • An additional 0.9 percent Medicare tax applies to earnings above threshold amounts: • $200,000 for single or head-of-household filers • $250,000 for married filing jointly • $125,000 for married filing separately Social Security and Medicare Taxes for Employees • Employers and employees each pay half of the 15.3 percent tax on wages (except the extra 0.9 percent Medicare tax, which employees pay entirely). • For 2026, only the first $184,500 of wages is subject to the Social Security portion. • Medicare taxes apply to all wages, with the additional tax rate kicking in at the thresholds above. • Social Security and Medicare taxes do not apply to a sole proprietor’s children under 18 who work in the business.
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