what is the self employed contributions act seca tax 
the self employed contributions act seca tax is imposed by the u s government on individuals who are self employed as opposed to those who work for an employer it requires self employed individuals to pay both the employer and employee shares of the federal insurance contributions act fica tax these contributions are crucial for funding social security and medicare programs ensuring that self employed workers are covered by these essential social safety nets just like traditional employees 1understanding the self employed contributions act seca taxseca taxes are calculated on net earnings defined as the gross income derived from business activities minus the expenses incurred in the course of doing business 3self employed individuals pay social security taxes at a combined rate of 12 4 this covers both the employer s and the employee s portions since they fulfill both roles self employed taxpayers subject to seca are taxed at 12 4 6 2 6 2 as they are considered to be both employer and employee 45there are limits however on how much income is subject to this percentage this tax is capped applying only to the first 160 200 of earnings in 2023 and increasing to 168 600 in 2024 earnings above these amounts aren t subject to social security tax the medicare tax rate is set at 2 9 with no cap on the income it applies to bringing the total seca tax rate to 15 3 6an additional medicare tax applies to earnings above 200 000 or 250 000 for joint filers according to the irs self employed individuals can also deduct health insurance costs affecting their net earnings calculation 7to pay self employment tax you need to have a ssn or itin and tax payments are typically made through estimated tax payments each quarter you must pay self employment tax on all earnings including foreign income exempt from income tax this applies to earnings from both within the united states and abroad 8 however the u s has agreements with certain countries to avoid double taxation to show you re exempt from foreign social security taxes but liable for u s self employment tax obtain a certificate of coverage from the u s social security administration or a foreign agency and attach it to your form 1040 noting your exemption 9deducting the self employed contributions act seca taxthe employer portion of the payment is deductible as a business expense in other words the irs allows self employed individuals to use the employer half of the self employment tax as a business deduction for purposes of calculating the taxpayer s income tax this takes into account that the efforts of running a company are taken on by an individual rather than an employer which would be the case for an employee of a company it is important to understand that this deduction impacts your income tax calculation without changing your self employment net earnings or the self employment tax you owe deducting half of the self employment tax only modifies how your income tax is computed not your earnings or the self employment tax due 10high income earners face an additional seca levy as a result of the affordable care act aca individuals with a net income above 200 000 250 000 for married couples filing jointly or 125 000 for married couples filing separately will be subject to an additional 0 9 medicare tax 10 it applies to wages self employment income and railroad retirement compensation 11paying the self employed contributions act seca taxthe irs mandates that self employed individuals include seca tax in their quarterly estimated tax payments since they don t have withholding taxes no seca tax is due for net earnings below 400 or 108 28 from certain church related work that s exempt from employer taxes however once earnings exceed these amounts seca tax is due on the full earnings even the portion below the threshold 1213