Entrepreneurs in the US must pay mandatory Self-Employment Contributions Act (SECA) taxes, which fund Social Security and Medicare.
Additionally, they must pay federal, state, and local income taxes.
Self-employed individuals are responsible for both the employer and employee portions of these contributions.
Mandatory contributions for entrepreneurs are structured as follows: Social Security Tax: 12.4% on net business earnings, up to an annual wage limit set by the government.
Medicare Tax: 2.9% on all net business earnings. High-earning individuals may also be subject to an Additional Medicare Tax.
Federal Income Tax: Paid on net business profits based on standard federal marginal tax brackets.
State and Local Income/Business Taxes: Mandatory depending on the state where the business is registered and operates (e.g., California, New York, or Texas).
Quarterly Estimated Taxes: Entrepreneurs must file Schedule SE (Form 1040) and pay estimated taxes to the Internal Revenue Service (IRS) on a quarterly basis (e.g., April, June, September, January) to avoid underpayment penalties.
