Do sole proprietors pay self employment tax?

The IRS website states sole proprietors pay personal tax only (see chart at the bottom of the page), but it’s my understanding that they must pay both personal income tax and self-employment tax. Can you explain why there is a discrepancy? 

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  1. 6 Answers

    Sole proprietors pay both personal income tax and self-employment tax (Medicare 2.9% and social security tax 12.4%) if there is business income. You must report all business profits and losses on your personal income tax return specifically on schedule C since the business entity falls within the “pass-through” taxation for this type business structure. Sole proprietors receive 100% of the business profits, therefore, the sole proprietor pays 100% of the income tax liability on their personal income tax IRS Form 1040 -especially self-employment tax. This may seem like a discrepancy because often people are used to the employee – employer W-2 circumstance where the employer and the employee share a 50-50 percent obligation to pay employment tax. When the sole proprietor is as the definition of sole proprietorship states, owns and operates a solo-owned entity, 100% liability including taxes are the sole responsibility of the sole proprietor.

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