Self-employed people are responsible for paying the Self-Employed Contributions Act (SECA) tax. They contribute to the cost of Social Security and Medicare by paying tax on a part of their net income.
How Does The SECA Tax Work?
The U.S. government levies the Self-Employed Contributions Act (SECA) tax on those who work for themselves rather than a third party. The Federal Insurance Contributions Act (FICA) tax, which supports Social Security and Medicare, mandates that self-employed individuals make tax contributions that are equal to both the employer and employee components of the FICA tax.
Self-employed taxpayers are in charge of paying their own SECA tax liability through quarterly anticipated tax payments, payments made in conjunction with requests for extensions of time to submit returns, and/or payments made when filing income tax returns.
Types Of SECA Tax
Social Security Tax
The Social Security component of the SECA tax is equal to 12.4% of 92.35% of your net earnings from self-employment. There is a cap on the yearly wage base, though. Only the first $142,800 of combined salaries, compensation, and self-employment income for the tax year 2021 is subject to the SECA tax’s Social Security portion. The yearly Social Security wage base limit is this sum, and it fluctuates each year. The wage base limit is raised to $147,000 in 2022.
Medicare Tax
The Medicare portion of the SECA tax is 2.9 percent of your net self-employment income or 92.35 percent. The Medicare tax does not have a maximum wage base, in contrast to the Social Security tax. Your total net profits from self-employment, wages, and compensation are all subject to tax.
How Do I Avoid Paying Taxes If I Am Self-Employed?
You cannot avoid paying taxes if you work for yourself; doing so is considered tax evasion. Making tax deductions to lower your earnings will lower your overall tax burden and lower the amount of taxes you owe. The IRS permits self-employed people to deduct a variety of business-related expenses from their taxes, including those for office supplies, office furniture, gas, electricity, and insurance.
Resolve Your Tax Bills
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