What determines the social security tax for a self-employed contractor?

The social security tax for a self-employed contractor is determined by the rate set for the self-employed for the year in which the tax is paid. This rate is established annually and applies specifically to net earnings from self-employment. The correct answer highlights that self-employed individuals are responsible for paying the full amount of social security and Medicare taxes, as they do not have an employer to handle part of these taxes for them.

Each year, the IRS publishes the self-employment tax rate, which is based on the overall payroll tax framework. This means that self-employed contractors must be mindful of current rates as they can change from year to year, influencing how much they owe in social security taxes.

The other options do not accurately reflect how the social security tax is calculated for self-employed individuals. A flat rate decided by the government annually does not take into account self-employment specifics. An average of the last three years’ tax rates is not a method used for determining current liability, nor does income level of the contractor alone dictate the tax amount since the tax is a function of the established self-employment rate on taxable income rather than a variable based solely on income level.