Post-pandemic world has seen more and more people started working for themselves either by setting up their own business or working as a freelancer which potentially triggers self-employment tax.

In this short article we will briefly look at a few basic questions of the self-employment tax:

  1. Who is considered self-employed?

Generally, a taxpayer is considered as self-employed if any of the following below apply:

  1. You carry on a trade or business as a sole proprietor or an independent contractor
  2. You are a general or limited partner in a partnership performing services for the partnership that carries on a trade or business
  3. You are otherwise in business for yourself (including a part-time business or a gig worker)


  1. Who must pay self-employment tax?

Taxpayer must pay self-employment tax and file Schedule SE attached to Form 1040 if one of the above criteria mentioned and either of the following below applies:

  1. Your net earnings from self-employment (excluding church employee income) were USD $400 or more
  2. You had church employee income of USD $108.28 or more


  1. What is self-employment tax rate?

The self-employment tax rate is 15.3% which consists of two parts: 12.4% for social security and 2.9% Medicare. In addition, if self-employment income is above the threshold of US $124,800 for 2021, taxpayer is subject to additional 0.9% Medicare tax. This income threshold has been increased to US $147,000 for 2022.

  1. How can a taxpayer determine if the income is subject to self-employment tax?

Taxpayers can refer to IRS created online tool to determine if the income is subject to self-employment tax by visiting HERE.

  1. What are few examples of self-employment tax?

Example 1: John, a US citizen living in Hong Kong provided private music lessons in 2021. John was directly contacted by his students. The income earned from such lessons in 2021 was USD $50,000. John will be subject to self-employment tax as he would be considered a freelance worker by the IRS living in Hong Kong and has earned more than USD $400.

Example 2: Nicole, a US citizen moved to Hong Kong ten years ago and started working as a sole proprietor performing accounting services for small and medium sized US businesses based in Hong Kong. She earned more than USD $400 in net earnings at any given point in time. Nicole would be subject to self-employment tax as she is a sole proprietor earning more than USD $400.

Above are some basic questions on self-employment taxes to provide a general guidance. Please consider consulting your tax adviser to know more for any questions you may have regarding self-employment taxes.