Self-employment tax is typically associated with which business structure?

• A. Corporation
• B. Partnership
• C. Limited liability company
• D. Sole proprietorship

Answer: (D)

Self-employment tax is the Social Security and Medicare tax paid by individuals who work for themselves. In a sole proprietorship, the owner is the business—the profits are reported on the owner’s personal tax return, and net earnings from the business are subject to self-employment tax. This setup means you handle both income tax and self-employment tax on your own, without an employer payroll deduction.

In contrast, a corporation typically pays payroll taxes on wages to employees, and corporate profits not paid as wages aren’t subject to self-employment tax. Partnerships and LLCs treated as partnerships can involve self-employment tax for active partners or members on their share of earnings, which adds nuance and isn’t as universally applicable as with a sole proprietorship.

So, self-employment tax is most commonly associated with a sole proprietorship.