The Ceiling and Floor on Earnings Subject to SECA Tax

In computing your Self-Employment Contributions Act (SECA) tax, the Medicare (Hospital Insurance (HI)) portion of the tax is imposed at a rate 2.9% of all your net business income, with no upper limit.

The Social Security portion of the tax is imposed at a rate of 12.4 percent, but it only applies to the first $117,000 in 2014. The SECA tax combines both the employer and the employee portion of the social security tax.

If you have earnings from a regular job, or perhaps more than one job, your employer will automatically withhold FICA tax from your wages. Your wages, salary, bonus, tips, etc. earned on the job will count toward the $117,000 amount, and at most your SECA tax will apply to the difference.

Overpayments of FICA tax. If you had more than one job during the year, and the total of all your income from those jobs added up to more than $117,000, you likely don't need to pay any SECA tax on your self-employment income. What's more, it's likely that too much Social Security tax has been withheld from your paychecks.

Take a look at the amount in Box 4 on all of your W-2 Forms. If you've paid too much tax, the overpayment (what you've paid minus the maximum dollar amount) can be claimed as a subtraction from your tax bill on Line 69 of Form 1040. You cannot use Form 1040EZ or Form 1040A to claim this overpayment.

Additional 0.9 percent Medicare surtax on higher-earners. A 0.9 percent additional Medicare tax applies to self-employment income exceeding a threshold amount. As is the case with the standard Medicare (HI) tax, there is no cap on the amount of earnings subject to the Medicare surtax. The threshold amount is based on filing status ($250,000 for joint return, $125,000 for separate, and $200,000 in any other case) and is coordinated with FICA wages. (The corresponding FICA surcharge is borne entirely by the employee; there is no employer match. Presumably, this is why there is no employer-equivalent deduction for self-employment tax purposes.)

Warning If your income is high enough to be subject to this surtax, consider increasing the amount of your estimated tax payments, in order to avoid a penalty come tax time. Your accountant or advisor should be able to help you decide how much to pay.

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