The Self-Employment Contributions Act - John R. Dundon II, Enrolled Agent
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The Self-Employment Contributions Act

The Self-Employment Contributions Act

The Self-Employment Contributions Act (SECA) imposes two taxes on self-employed individuals: an old-age survivors and disability insurance tax (OASDI) commonly referred to as Social Security tax, and a hospital insurance or Medicare tax (HI). These SECA taxes apply to net earnings from self-employment above a $400 minimum for the tax year. There is an annually-adjusted ceiling limitation on the amount subject to OASDI tax ($106,800 for 2011) which is reduced by any wages received by the individual in the same tax year. There is no limit on the HI tax.

In 2011 only, the tax rate for the OASDI portion of the SECA tax was 10.4%, and the combined OASDI and HI rate on net earnings from self-employment up to $106,800 is 13.3% rather than 15.3%. The rate on net earnings from self employment in excess of $106,800 is 2.9%. The maximum savings for self-employed persons is $2,136 ($106,800 x .02).

The income tax deduction under IRC Sec. 164(f) allows for deduction of the full employer share and is computed for 2011 as follows:

• 59.6% (0.062÷0.104) of the OASDI paid; plus
• 50% of the HI tax paid.