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  • from http://taxguide.completetax.com/text/Q15_3110.asp

    "The Self-Employment Contributions Act (SECA) tax is basically the business owner's version of the FICA tax that employees pay. Like FICA, it is made up of your "contributions" to both the Social Security and Medicare programs.

    "However, the basic tax rate for the self-employed under SECA is 15.30 percent - twice the 7.65 percent rate that employees must pay on their paychecks as FICA tax - to reflect the fact that employees pay one-half the FICA tax and employers pay the other half.

    "What income counts?

    "For starters, you don't have to worry about paying the SECA tax at all if your total business income, from all Schedule Cs combined and from any partnership or S corporation income that is treated as self-employment income, is less than $400.

    "But if your total income is $400 or more, you must file a Schedule SE and pay SECA tax on your entire net business income, including the first $400.

    "If you are filing jointly and your spouse also files one or more Schedule Cs, each spouse must count his or her own income separately."

    In short, there is no "social security loop hole".

    As an Employee, your Employer paid his/her half of the Social Security tax, and you paid your half.

    Now, as Self-employed, the IRS views you as both the Employer and Employee and you must therefore pay both sides of the tax.

    Otherwise, when it came time to collect Social Security Retirement Benefits, you would have paid 50 percent less then Employees and Employers who together paid the whole tax.

    On the other hand, most of us want to receive the whole Social Security Retirement Benefit -- and to afford that, the IRS requires that you pay both Employer and Employee taxes.

    I used to work for myself. In terms of Benefits, Social Security Benefits are the BEST retirement pension and medical insurance deal -- and are well worth the premium that we pay.

    Private Insurance coverage, as you know, would cost you a lot more and would provide much more restrictive benefits -- since the primary objective of Private Enterprise, including the Insurance Industry, is to make as much Income and Profits as possible.

  • Login to rate this answer:   Answered on 1/2/2008
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.