A contractor is an individual or company who contracts to do work for another party. Independent contractors take on specific tasks while maintaining control over the means and methods of executing the job.
Employment tax refers to the taxes that employers must pay based on the wages they pay to their employees. These taxes include federal income tax withholding, Social Security and Medicare taxes (FICA), federal unemployment tax (FUTA) and, for self-employed individuals, self-employment tax.
The hospital insurance portion of the tax assessed on compensation and self-employment earnings under the Federal Insurance Contributions Act (FICA). The Medicare tax is 2.9% of all earnings, with employers and employees each responsible for a portion.
An unincorporated business owned by a single person, where the individual proprietor has rights to all profits and responsibilities for all liabilities. The income is reported on Schedule C of Form 1040 and is subject to self-employment tax.
Self-employed individuals work for themselves, without a formal employer, and include sole proprietors and partners in partnerships. They shoulder all business risks and responsibilities, paying self-employment tax in addition to income tax on their net income.
The Self-Employment Contributions Act (SECA) is a federal law in the United States that imposes a tax on the income of self-employed individuals for the purposes of funding Social Security and Medicare programs.
Provision for Social Security (old-age, survivor's, and disability insurance) and Medicare (hospital insurance) for self-employed individuals. The rate is equal to the combined rates paid for Social Security by both employer and employee.
