Why do I owe both the employer and employee halves of Social Security tax?

When you work for someone else, your employer pays half of your 15.3% payroll tax (7.65%) and withholds the other half from your paycheck. As a self-employed person, you are both the employer and the employee, so you owe the full 15.3% yourself, which the IRS calls self-employment tax. It covers 12.4% for Social Security, up to an annual wage base the Social Security Administration adjusts each year, plus 2.9% for Medicare with no cap. To soften the blow, the IRS lets you deduct one-half of the SE tax as an above-the-line adjustment, and you calculate the whole thing on Schedule SE. Budget for it early, because it is separate from your income tax.