Self Employed Contributions Act (SECA) - Explained
What is the Self Employed Contributions Act?
Written by Jason Gordon
Updated at July 11th, 2021
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Table of Contents
What is the Self Employed Contributions Act Tax (SECA)?SECA Tax RatesAcademic Research on Self Employed Contributions Act Tax (SECA Tax)What is the Self Employed Contributions Act Tax (SECA)?
Self Employment taxes apply to those who are self-employed in a sole proprietorship or partnership-taxed entity. Self-Employment taxes are made up of FICA taxes (Social Security and Medicare). Employees pay 1/2 of FICA taxes, and employers pay the other half. Self-employed individuals, per SECA, pay both the employer and employee portions.
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SECA Tax Rates
- Social Security Tax is charged at 6.2% for employers, and at an equal rate for employees. Paying taxes as a self employed person or business will invite a Social Security Tax of 12.4%. It is capped at $12,921.60 for a net income of $128,400 as a self employed entity.
- Medicare Tax rates for regular businesses and their employees is charged at 1.45%. Hence under SECA, it comes up to 2.9%.
- Total SECA Tax rate is now 15.3%. A self-employed individual earning a net income of $100000 per annum will pay a FICA Tax of $15,300. Filing taxes as a couple incurs an additional 0.9% in Medicare taxes.
Social Security component of SECA Tax is eliminated when the income level reaches a capped threshold. There's no such exemption on Medicare taxes for any amount of net income earned.
The IRS allows this provision to self employed individuals, facilitating deduction of 7.65% tax as a business expense. This brings the net income on which SECA tax can be deducted to 92.35% of an individual or business's total net earnings. SECA tax isn't applicable on earnings of less than $400.
Academic Research on Self Employed Contributions Act Tax (SECA Tax)
- Breaking the Glass SlipperReflections on the Self-Employment Tax, Dilley, P. E. (2000). The Tax Lawyer, 54(1), 65-104. This paper takes a critical view of the process of formulating tax laws with focus on SECA tax.
- The Gap in the Employment Tax Gap, Winchester, R. (2009). Stan. L. & Pol'y Rev., 20, 127. This paper focuses on the gaps in collecting taxes from self-employed individuals and businesses.
- Will Tax Based Health Insurance Reforms Help the SelfEmployed Stay in Business?, GurleyCalvez, T. (2011). Contemporary Economic Policy, 29(3), 441-460. This paper examines the health insurance implications of SECA taxes and proposes incentives to reform the process.
- The responsiveness of self-employment income to tax rate changes, Heim, B. T. (2010). Labour Economics, 17(6), 940-950. This paper explores the correlation between changes in tax rates and the responsiveness of self-employment income to these changes.
- Flowthrough Entities and the Self-Employment Tax: Is It Time for a Uniform Standard, Fritz, T. E. (1997). Va. Tax Rev., 17, 811.
- Small business, innovation, and tax policy: A review, Gale, W., & Brown, S. (2013). This paper presents a review of the influence of tax policies on innovation in small businesses.
- Taxation of capital and labor: The diverse landscape by entity type, Bull, N., & Burnham, P. (2008). National Tax Journal, 397-419. This paper focuses on the tax reporting mechanisms in place for different entities.
- United States Employment Taxation of German Nationals Working in the United States, Gornall Jr, J. L., & Conboy, K. (1983). Vand. J. Transnat'l L., 16, 353.
- The Sea Clammers Doctrine: Reeling in Private Employment Tax Claims in Worker Misclassification Cases, Ball, J. A. (2002). DePaul Bus. & Comm. LJ, 1, 215. This paper sheds light on the cases of misclassification that wrongfully levy SECA taxes on individuals who arent self-employed.
- Social Security Taxes: Where Do Surplus Taxes Go and how are They Used?, Koitz, D. (1993). This paper follows the money trail to figure out what happens to Social Security taxes and how theyre used.
- Analysis of Specific tax Provisions in President Obama's FY2015 Budget, Maag, E., Nunns, J., Toder, E., Williams, R., & Center, U. B. T. P. (2014). Washington, DC: Urban Institute and Brookings Institution Tax Policy Center. This paper analyses US President Obamas FY 2015 Budget with focus on its tax provisions.