Future Business Leaders of America (FBLA) Agribusiness Practice Test

Who is responsible for paying self-employment tax?

1. Employees working for a company

2. Individuals who are self-employed

3. Employers paying into Social Security

4. Only corporations

The correct answer is: Individuals who are self-employed

Individuals who are self-employed are responsible for paying self-employment tax. This tax is essentially the self-employed person's equivalent of the FICA tax that employees and employers pay in a traditional job setting, which funds Social Security and Medicare. Since self-employed individuals do not have an employer withholding taxes from their earnings, they must pay both the employee and employer portions of Social Security and Medicare taxes through self-employment tax. This tax is calculated based on the net earnings from self-employment, and self-employed individuals need to report their income to the IRS and pay the required self-employment tax alongside their regular income tax. It's important for those in self-employment to understand this responsibility, as failing to pay self-employment tax can lead to penalties and interest on unpaid amounts.