I think you're confused. "Payroll tax" and "self-employment tax" are both informal ways to refer to the employers portion of social security tax (FICA). It soun

I think you're confused. "Payroll tax" and "self-employment tax" are both informal ways to refer to the employers portion of social security tax (FICA). It sounds like this guy was paying income tax on it, but not social security or medicare (which is about 15% total for self-employed). This is an entirely reasonable mistake because that is the correct way to do taxes on unearned income like interest. Only earned income is subject to social security and medicare.