What does "self-employment tax" refer to?

Self-employment tax specifically refers to a tax that encompasses both Social Security and Medicare taxes for individuals who work for themselves rather than as employees. When a person is self-employed, they are responsible for paying these taxes on their net earnings, which is distinct from typical income tax processes. Employees have these taxes withheld by their employers, but self-employed individuals must calculate and remit this tax on their own.

The self-employment tax rate includes the employer and employee portions of Social Security and Medicare taxes, which makes it different from taxes associated with wages earned as an employee. By paying self-employment tax, individuals contribute to their entitlement to benefits from these federal programs, similar to employees did through payroll deductions. This is why the definition involving Social Security and Medicare is accurate for self-employment tax.