Income taxes are different for self-employed workers. If you are a sole proprietor of a business or an independent contractor, you don't receive a regular weekly or monthly paycheck from an employer who is obligated to withhold certain taxes, including FICA contributions. Instead, the IRS requires most self-employed workers to pay estimated taxes four times a year. This helps self-employed workers keep better track of their tax burden (no nasty surprises in April) and keeps money flowing into the Treasury year-round.
Technically, self-employed workers pay no FICA taxes at all. Or rather, they go by a different name. Self-employed workers pay a Self-Employment (SE) tax, which covers the same Social Security and Medicare contributions as FICA [source: IRS]. The downside of being self-employed is that you are responsible for paying the full 15.3 percent Self-Employment tax, whereas wage and salary employees only pay half for FICA. Self-employed people pay 10.6 percent of their salaries to the Old-Age and Survivors Insurance (OASI) fund, as well as 1.8 percent to the Disability Insurance (DI)fundand 2.9 percent for Hospital Insurance (HI).
It's not all bad news for self-employed workers, though. For starters, you are able to deduct half of your Self-Employment tax from your adjusted gross income [source: IRS]. Additionally, some economists argue that wage and salary workers ultimately end up paying the other half of their payroll taxes, too, because employers keep salaries lower so they can cover their costs [source: Tax Policy Center].
For lots more information on income taxes, employment and the IRS, see the links on the next page.