How is income from self-employment taxed?

Income from self-employment is subject to both income tax and self-employment tax. This is because self-employed individuals must report their income as part of their personal income tax returns, just like employees do. The income earned is taxed based on the individual's tax bracket under the regular income tax system.

In addition to income tax, self-employed individuals also owe self-employment tax, which is primarily composed of Social Security and Medicare taxes. This tax is applicable because self-employed workers do not have an employer to withhold these taxes from their paychecks. Instead, they are required to calculate and pay these taxes directly based on their net earnings from self-employment.

Combined, these two forms of taxation ensure that self-employed individuals contribute to social insurance programs while also fulfilling their standard tax obligations. Therefore, the answer correctly identifies that both taxes apply to income from self-employment.