How is self-employment income characterized?

Self-employment income is characterized as earned income that is not paid by an employer, which reflects the nature of how individuals generate revenue through their own business activities. Self-employed individuals often earn money through freelance work, business ownership, or providing services. This type of income is distinct from traditional employment arrangements, where an employer pays a salary or wages.

Self-employment income is reported on tax returns differently than wages earned in a conventional job; it requires the individual to also account for self-employment taxes, which cover Social Security and Medicare taxes. This classification captures the essence of self-employment, emphasizing that such earnings are directly tied to one's initiative and work rather than being dependent on an employer's payroll system.