Self Employment Contributions Act
What does Self Employment Contributions Act mean?
The Self-Employment Contributions Act, also know as the SE Tax Act or simply self-employment tax, imposes Social Security and Medicare tax on self-employed individuals.
The Self-Employment Contributions Act applies to anyone who earns more than $400 from self employment. For the 2013 tax year, self-employed individuals pay 15.3 percent on the first 92.35 percent of business earnings. The 15.3 percent is the combined total of the 12.4 percent Social Security tax and the 2.9 percent Medicare tax imposed on regularly-employed individuals under FICA, the Federal Insurance Contribution Act.
The 12.4 percent portion of self-employment tax related to Social Security is only assessed on the first $113,700 of business income. The 2.9 percent of self-employment tax related to Medicare is assessed on all business income.
The Self-Employment Contributions Act does not apply to regularly-employed individuals, as they fund Social Security and Medicare through a tax imposed by FICA.