What is the impact of FICA on self-employed persons?

Self-employed individuals are required to pay Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare, similar to employees. However, the key point is that while employees share this tax burden evenly with their employers (each paying half), self-employed individuals must cover the full amount themselves, which effectively results in a higher tax obligation when compared to employees who benefit from their employer's contribution.

Self-employed persons pay the self-employment tax, which encompasses both the employee and employer portions of FICA taxes. This means they are subject to the same overall tax rate as employees, although they are responsible for the entire amount rather than just half. Thus, self-employed individuals experience a higher effective tax rate in practice, but the FICA rate they are subject to in terms of the components included is the same as that for employed individuals.