Social Security and Medicare Contributions
How Contributions are Calculated
The FICA (for Federal Insurance Contributions Act) tax (also known as Payroll Tax or Self-Employment Tax, depending on your employment status) is your contribution to Social Security and Medicare as a percentage of your salary:
If you're an employee, then you pay one half of this total (probably as a withholding on your paycheck);
your employer pays the other half for you (and then gets a deduction for their half on their corporate tax return, since it's an expense - for them it's as if the FICA "half" is an additional piece of salary).
If you're self-employed, then you pay the whole total yourself as Self-Employment tax, and then get a tax deduction on half of it as an "adjustment" on your tax return.
Now here's where it gets a little confusing.
What the previous paragraph shows is that being self-employed is like being an employee, but at a lower salary - lower by the FICA "half" that employers pay for their employees.
And so, if you're self-employed, you don't have to pay FICA on all your salary, just on 92.35% of it
(92.35 being 100 minus 7.65 - which is the contribution that your employer would have paid, if you had an employer, which you don't).
More Information
For much, much more on Social Security, see this official
history site,
which includes this table showing the contribution percentages since the program started in the 1930s.
|
