Discussion:SE tax vs FICA/medicare
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Discussion Forum Index --> Tax Questions --> SE tax vs FICA/medicare
| December 16, 2007 | |
| I'm working on something that just raised a question. Let's say someone has gross wages of $100,000 and that's the taxable base for FICA. The FICA and medicare related to those wages is $7,650 ($100,000 x 7.65%). Total (employer and employee) FICA/medicare would be $15,300.
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| December 17, 2007 | |
| Actually for 2008 it is greater than $100,000. Let's just assume that it's at least $100,000. It makes the calculations easier. | |
| 17 December 2007 | |
| OK. I understand. The difference is because the employer (Sch C or K-1 from an S corp or LLC) is eligible for the employer's portion of the payroll taxes. On $100,000, the employer would get a deduction of $7,650 leading to a net income of $92,350. In your example, an self-employer proprietor or a sole stockholder could be the employer. | |
| 17 December 2007 | |
| The reason the SE tax is less is that it is computed on .9235 of income. (See line 4, Schedule SE) This is to compensate for the inability to deduct employer's share. | |
| 8 January 2008 | |
| Another SE tax question. My wife and I each operate a business as sole proprietorships. We are in a state (CA) with community property rights. Our combined net income is greater than $97,500 in 2007. Can we limit our SE tax to the $97,500 individual maximum or do we need to calculate and pay SE tax separately? | |
TheTinCook (talk|edits) said: | 8 January 2008 |
| You need to calculate and pay separately. | |
| 8 January 2008 | |
| Natalie, if you have net schedule C income of less than the SocSec limit, you can multiply by 14.1295% to get to the self-employment tax...which factors in the above computations. I learned this % years ago, makes reviewing a return a lot easier. | |
| 8 January 2008 | |
| The SE tax is limited at the individual level, not the married, joint level. Community property rules will not change the allocation of SE earnings between the spouses. So if H earns $110k and W earns $90k in their respective proprietorships, their SE earnings will not be evened out between the two. | |
| 8 January 2008 | |
| The following is quoted from:
http://www.smsmallbiz.com/taxes/The_Dreaded_Self_Employment_Tax.html “If you and your spouse are the co-owners of an unincorporated business in one of the nine community property states (which include California and Texas), the IRS generally allows you to treat one spouse as the sole owner for tax purposes. The IRS doesn't appear to care which one. That person then fills out one Schedule SE to calculate the entire SE tax hit from the husband-wife venture. This means you only have to go through the Social Security tax cutoff point once, which can greatly reduce your SE tax bill. Unfortunately, the instructions to Schedule SE make it anything but clear that this special loophole exists. But it does, according to IRS Revenue Procedure 2002-69. If you think you qualify, you may want to hire a tax pro to get involved with your return.” Any comments much appreciated. | |
Rgtaxservice (talk|edits) said: | 8 January 2008 |
| If each spouse owns/operates their own sole prop, then each would pay SE of their individual profit up to 97K.
It's a joint sole prop. Each spouse would pay SE on their 50% of the profit up to 97K each. | |
