Which statement best describes self-employment tax as defined in the material?

Which statement best describes self-employment tax as defined in the material?

• A. Tax paid on gross revenue
• B. Tax paid on salaries of employees
• C. Tax paid on dividends to shareholders
• D. Tax paid on net business income

Answer: (D)

Self-employment tax is calculated on net earnings from self-employment, meaning the net business income after subtracting ordinary and necessary expenses. This tax funds Social Security and Medicare for individuals who work for themselves, so the base is the actual profit from the business rather than gross receipts. Because deductions reduce what you actually earn, the tax is tied to net income, not gross revenue. The other descriptions don’t fit: gross revenue ignores deductions, payroll taxes apply to salaries of employees, and dividends are not subject to self-employment tax.

Self-employment tax is calculated on net earnings from self-employment, meaning the net business income after subtracting ordinary and necessary expenses. This tax funds Social Security and Medicare for individuals who work for themselves, so the base is the actual profit from the business rather than gross receipts. Because deductions reduce what you actually earn, the tax is tied to net income, not gross revenue. The other descriptions don’t fit: gross revenue ignores deductions, payroll taxes apply to salaries of employees, and dividends are not subject to self-employment tax.