Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Home
  • Business Management & Operations
  • Strategy, Entrepreneurship, & Innovation

Self Employed Contributions Act (SECA) - Explained

What is the Self Employed Contributions Act?

Written by Jason Gordon

Updated at April 14th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

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 are Payroll Taxes?

Payroll taxes consist of Medicare and Social Security taxes that are required to be withheld by an employer from an employee's compensation. Payroll taxes are authorized under the Federal Insurance Contributions Act or FICA. 

The employer is also required to pay FICA taxes on the compensation of any employee. 

Generally, an employer pays an amount approximately equal to the amount paid by the employee. 

Together, the employer contribution and employee contribution make up the total payroll taxes. 

What are Self Employment Taxes?

Self-Employment taxes are a combination of the employer and employee's FICA taxes (Social Security and Medicare). 

What is the Self Employment Contributions Act?

The Self-Employment Contributions Act (SECA) of 1954 requires self-employed individuals to pay both or the combination of the employer and employee's FICA obligations. 

For example, a sole proprietor earns income from a client. The sole proprietor would have to withhold approximately 15.3 percent of the income for FICA taxes, because the SP is both the employer and employee. 


Self Employment taxes apply to those who are self-employed in a sole proprietorship or partnership-taxed entity. 

Generally, employees pay 1/2 of FICA taxes, and employers pay the other half. Because the employer and employee may be the same person, that individual is subject to the full amount of FICA tax. 

In summary, self-employment taxes are the full amount of FICA taxes. 

Back to: Entrepreneurship

How Much are Self Employment Taxes?

  • 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%. These are not capped. 
  • Total SECA Tax rate is now 15.3%. A self-employed individual earning a net income of $100,000 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.



fica seca seca taxes amount of fica social security medicare self employment taxes payroll taxes

Was this article helpful?

Yes
No

Related Articles

  • Acceptance Testing - Explained
  • Register a Business Name - Explained
  • Core Competency - Explained
  • Strategic Management - Explained



©2011-2021. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand