What Is the SECA Tax?
If you're self-employed, you face the Self-Employed Contributions Act (SECA) tax, which the U.S. government imposes on you instead of those working for an employer. You have to cover both the employer and employee shares of the Federal Insurance Contributions Act (FICA) tax. These payments fund Social Security and Medicare, so you get the same coverage as traditional employees.
Understanding the SECA Tax
You calculate SECA taxes based on your net earnings, which means your gross income from business minus your business expenses. As a self-employed person, you pay Social Security taxes at 12.4% total— that's 6.2% for the employer part and 6.2% for the employee part, since you're both. This rate applies up to $160,200 in 2023 and $168,600 in 2024; anything above that isn't taxed for Social Security.
For Medicare, you pay 2.9%, with no income cap, making the total SECA rate 15.3%. If your earnings top $200,000 (or $250,000 if filing jointly), you add an extra 0.9% Medicare tax. You can deduct health insurance costs to reduce your net earnings. To handle this, you need a Social Security Number or ITIN, and you pay through quarterly estimated taxes.
Remember, you must pay SECA on all earnings, including foreign income exempt from income tax, but U.S. agreements with some countries prevent double taxation—get a certificate and attach it to your Form 1040 if that applies to you.
Deducting the Tax
You can deduct the employer portion of your SECA payment as a business expense. This means the IRS lets you subtract half of the self-employment tax when figuring your income tax. It recognizes that you're handling all the company efforts yourself, unlike an employee.
This deduction only affects your income tax calculation—it doesn't change your net earnings or the self-employment tax you owe. If you're a high earner, watch for the additional 0.9% Medicare tax from the Affordable Care Act on income over $200,000 (or $250,000 jointly).
Paying the Tax
Since you don't have withholding, you include SECA in your quarterly estimated tax payments. No tax is due if your net earnings are under $400 or $108.28 from exempt church work, but once you exceed that, you pay on the full amount.
Overall, your self-employment tax is 15.3%, plus any additional 0.9% if you hit the thresholds. You can't avoid paying taxes—that's evasion—but you can reduce your taxable income with legitimate business deductions like supplies, equipment, and insurance.
FAQs
You do pay more if self-employed because you cover both sides of Social Security and Medicare, totaling 15.3%, though you deduct the employer half. For how much, it's 15.3% on top of income tax, with extras for high incomes.
The Bottom Line
As a self-employed person, SECA tax is your required payment to Social Security and Medicare at 15.3%, covering both shares, with potential extra for high incomes. You get deductions on the employer part and business expenses to ease the burden, balancing your responsibilities and benefits.
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