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How Do Self-Employed Business Owners Pay Social Security and Medicare?

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Question: How Do Self-Employed Business Owners Pay Social Security and Medicare?
Self-employed individuals are required to pay Social Security and Medicare tax on the profits of the business. These taxes are called, collectively, "Self-employment Taxes."
Answer:

How Do Self-Employed Individuals Contribute to Social Security and Medicare?
Self-employed individuals contribute to Social Security and Medicare in the same way as employers and employees. The tax amounts are the same, but self-employed contribute based on the Self-Employed Contributions Act (SECA).

What are SECA Taxes?
SECA tax includes OASDI (Old Age, Survivors, and Disability Insurance)) and Health Insurance (commonly known as Social Security and Medicare).

What income is SECA tax bssed on?
SECA tax rates are based on the net income of the business and each owner or shareholder's portion of that income.

What are the Social Security and Medicare Tax Rates for Self-Employed?
Under SECA, self-employed individuals contribute to Social Security at 12.4% of net income. The Social Security tax rate for 2010 and 2011 is 15.3 percent on self-employment income up to $106,800. If your net earnings exceed $106,800, you continue to pay only the Medicare portion of the Social Security tax, which is 2.9 percent, on the rest of your earnings.

How is SECA tax Calculated for Income Tax Purposes?
The amount of SECA tax you owe, based on your net income from self-employment, is calculated using Schedule SE.

Back to Self-Employment Taxes: What You Need to Know

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