[Anonymous]

Hey all

Kindly explain me the concept of SELF EMPLOYMENT TAX, who pays it and on which income is subject to Self Employment Tax??

[Anonymous]

Self Employment tax is paid by the individual on a 1040. It is Social Security and Medicare. If you work for someone else, your employer pays 7.65% of your gross payroll and you pay 7.65% (of course last year and this year it is actually 5.65%) of your gross pay. If you are self-employed then you have to pay both parts, but self employed individuals get to deduct the employer portion on the face of their 1040. Is this clear as mud?

[Anonymous]

@Kricket

Thank you so much..

If i work for someone else and i pay 7.65%, can i deduct the taxes i paid?

[Anonymous]

No. Only the employer can deduct what they have to pay.

Example #1: You work for someone else – $ is sent to the IRS with Form 941

$100 Weekly Gross Wages

(6.20) Social Security

(1.45) Medicare

$92.35 Weekly Net Wages

Example #2: You work for yourself – $ is sent to the IRS with 1040 on Schedule SE

$100 Annual Gross Wages

$15.30 is added to tax

$7.65 is deducted on the face of the 1040 to arrive at AGI.

This is good information to know but I don't think this is heavily tested. None of the review courses go into it in depth which sucks for me because its one of the few things I really understand! Don't let this hold you back from other, more heavily tested, topics.

Good Luck!

[Anonymous]

@Kricket

I got it, thanks again..I was working on 1 question in Becker Passmaster

IT tell that you got Guaranteed Payment from Partnership and that is subject to self employment? i am confused, if i got Guaranteed payment from Partnership, why is that subject to SELF Employment??

[Anonymous]

Because they're a partner in a partnership, so they employ themselves. A partnership can't pay partners wages.

[kmwgrace]

^ Exactly. To phrase it another way, a guaranteed payment to a partner is salary that the partnership pays that partner. Since the partner receiving the salary is also an owner of the business, s/he is paying the salary, thus is self-employed. It works just like the other self-employment example above – the partner would pay the employer half and the employee half out of the salary (aka guaranteed payment) but would deduct the employer portion on the tax return.

~ Kate... MTX!
CPA exam on hold while I homeschool my 6 year old!

[Anonymous]

@kmwgrace

Thanks

[Anonymous]

Here's a good summary…you generally either pay FICA (split between the employee and employer) or SECA.

https://www.ehow.com/list_6734683_differences-between-fica-seca.html

Once I understood the fact that the government is getting 15.3 % from someone under one system or the other it made perfect sense.

[jeff]

Self-employment tax: the government takes 15 cents out of every dollar a small business makes and gives it to other people for their retirement. They then take even more to service the debt that we owe China.

[Anonymous]

The self-employment tax is simple to understand.

If you work for someone else, the government leeches half of it from your employer and half of it from you.

If you work for yourself, the government leeches both parts of it from you, because they want to discourage people from working for themselves. 🙂

[Anonymous]

Thank you all..Got it

God Bless You

[Author]

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