How to Pay Self-Employment and FICA Tax

And if you’re a high wage earner, you’ll still have to pay the 0.9% Additional Medicare Tax above your earnings threshold. No, FICA taxes are shared between an employee and employer, and go to specific government programs for Social Security and Medicare benefits. Income taxes are paid only by an employee, though they’re collected and paid to the IRS by employers on an employee’s behalf. Fortunately, if you’re self-employed, you’ll get to deduct half of the tax (7.65%) when you file your tax return. The self-employment tax deduction is an above-the-line deduction that you can use to lower your income tax bill.

Policy makers are considering a variety of actions that could rectify this situation. These include raising the full retirement age (currently age 67), decreasing the financial benefits received, in particular by high earners, and increasing the payroll tax rate. The Social Security tax rate is 6.2% for both employees and employers.

This is not the case for the new 0.9 percent Medicare surtax, discussed below. There are limits, however, on how much income is subject to this percentage. For 2023, the Social Security tax is only applied to the first $160,200 of earnings.

  1. Employers must withhold funds from their employees’ pay for FICA and submit those monies, along with the employer’s half of FICA, to the IRS.
  2. The self-employment tax deduction is an above-the-line deduction that you can use to lower your income tax bill.
  3. Our specialists manage the process of payroll tax registration so that virtually no work is required on your part.
  4. SECA taxes are computed on the basis of net earnings, defined as the gross income derived from business activities, minus the expenses incurred in the course of doing business.
  5. Social Security tax is assessed at a basic rate of 6.2% for an employer and 6.2% for the employee.
  6. Sole proprietors and freelancers don’t have an employer to collect and pay FICA taxes.

In general, under SECA the self-employed person pays the same 15.3 percent rate as employers and employees pay under FICA. Though under SECA, the tax rate is based on net self-employment income rather than wages. For self-employed individuals, the importance of FICA taxes becomes even more significant. If you’re an employee, your company manages the FICA tax payments for you. This means self-employed individuals must set aside a portion of their earnings to cover both employee and employer contributions. SECA tax, also called self-employment tax, is paid by self-employed workers to cover the cost of Social Security and Medicare tax, part of which would typically be paid by an employer for traditional workers.

Additional Taxes

Many people refer to contributions to Social Security as either FICA or SECA taxes. The FICA exemption period covers your first 5 calendar years of physical presence in the US if you are a full-time student at a US educational institution. You are exempt for your first 2 years if you are not a full-time student. International students, scholars, teachers, professors, researchers, trainees, physicians, au pairs, summer camp workers, and other non-students on F-1, J-1, M-1, Q-1 or Q-2 visas are entitled to a FICA exemption. For self-employed people, there is an equivalent law called SECA (Self-employed Contributions Act). Per the recently passed Corporate Transparency Act (CTA), owners of smaller Limited Liability Companies (LLCs) and corporations will soon have another compliance requirement to adhere to this year.

What Is the Federal Insurance Contributions Act (FICA)?

Employers are required to withhold 1.45% of each employee’s taxable wages to cover it. Unlike the Social Security Tax, there is no maximum wage base limit for the Medicare Tax. In addition to this information, employers have to send Form 941 to the IRS to list information about quarterly payroll tax. These quarterly payroll tax reports must be submitted no later than the last month of every quarter.

This means if an employee earns $180,000 annually, FICA taxes will only be applied to the first $168,600 of those total wages. After that wage base limit is met, the remaining annual wages the employee earns that calendar year will not be subject to FICA’s Social Security tax. Maybe because pastors are ultimately employed by God and God alone? If you have more than one job, you may underpay the amount of FICA taxes you owe.

FICA Tax Exemptions

While FICA is a payroll tax, SECA (self-employment tax) is an income tax due on 92.35% of your self-employment earnings. Self-employed workers are responsible for paying both the employer and employee portions of the tax. The Additional Medicare Tax rate is 0.90% and it applies to the wages, salaries and tips of certain employees and self-employed workers. So any part of your income that exceeds a certain amount gets taxed for Medicare at a total rate of 2.35% (1.45% + 0.90%). You do not make separate SECA tax payments and regular income tax payments; they are generally combined and paid together.

After you find out more about FICA

For instance, if the employee pays 6.2% for Social Security, the employer also pays 6.2%. Similarly, for Medicare taxes, both the employee and employer each pay 1.45%. Erin Ellison is the former Content Marketing Manager for OnPay. She has more than 15 years of writing experience, is a former small business owner, and has managed payroll, scheduling, and HR for more than 75 employees. FICA may not sound like a whole lot of fun, but since it’s going to be part of your life every couple of weeks, now is a great time to read all about it. Let’s go into a bit more detail on both FICA taxes and take a look at the 2024 tax rates.

Workers who are self-employed or independent contractors still pay taxes for Social Security and Medicare, but under a separate piece of legislation called the Self-Employed Contributions Act (SECA). While this Self-Employment Tax uses the same rates for Social Security and Medicare as standard FICA taxes, the self-employed can’t share responsibility for paying these taxes since they work for themselves. They must pay the entirety of the Social Security and Medicare taxes on each paycheck. Today, FICA taxes include a Medicare tax along with the original Social Security tax (also known as Old Age, Survivors, and Disability Insurance or OASDI).

The Congress recognized that some differences between the taxes under SECA and FICA existed. To achieve parity between self-employed persons and employers and employees, the Congress enacted deductions under sections 164(f) and 1402(a)(12) of the Internal Revenue Code (Code). The $3720 you owe as self-employment tax is included on Line 27 of your personal Form 1040, and is included with any income fica vs seca tax you owe to determine your total tax bill for the year. Also note that your employer pays half of the FICA tax due, while you as a self-employed individual must pay the entire amount of Social Security/Medicare on your self-employment income. Оnce the exemption period has passed, this group of nonresidents are classified as resident aliens for tax purposes and subject to FICA tax withholding.

Married employees who file jointly while earning over $250,000 annually or file separately while earning over $125,000 annually are also subject to this additional tax. Self-employed workers get stuck paying the entire FICA tax on their own. For these individuals, there’s a 12.4% Social Security tax, plus a 2.9% Medicare tax.

If you are a member of a religious order who has taken a vow of poverty, you are exempt from self-employment tax as long as you are working for the church or a church agency. To get a copy, call the IRS at TAX-FORM or go to

Conscientious objection to taxes. If you are self-employed you cannot avoid paying taxes; that is considered tax evasion. You can reduce the amount of taxes you pay by making tax deductions to reduce your earnings, thereby reducing your total tax bill.

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