Senior Tax Specialist Practice Exam 2026 - Free Tax Specialist Practice Questions and Study Guide

The correct answer is the inclusion of Social Security and Medicare taxes in self-employment tax. Self-employment tax is primarily designed to cover these two specific federal programs, which provide benefits for retirees, disabled individuals, and survivors of deceased workers.

When an individual is self-employed, they are responsible for paying both the employer and employee portions of these taxes, which amounts to a total of 15.3%. This consists of 12.4% for Social Security and 2.9% for Medicare. Self-employed individuals do not have an employer to withhold these taxes from their paychecks, so they must calculate and pay them on their own.

Other taxes listed in the choices, such as income tax and local taxes, do not constitute self-employment tax itself, even though self-employed individuals also pay income tax based on their profits. Sales tax and use tax relate to transactions and goods sold and are not included in self-employment tax. Lastly, property tax and franchise tax are separate types of taxes pertaining to property ownership and business structure, respectively, and are not tied to the self-employment tax calculation. Therefore, Social Security and Medicare taxes are the correct focus when discussing self-employment tax.