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Social Security Payments and Self Employment Income

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Nickel and I were talking about the social security and he told me that you only have to pay on your first $94,200 of income, which was something we both knew already. For your typical employee, this calculation is very simple and done by your employer, you pay 6.2% of your salary up to $94,200 towards social security. Every dollar you earn after that will not be subjected to social security.

Now, all the literature on the social security website gives you a scenario where the $94,200 is entirely employee income, in which case the answers are cut and try: pay up to $5,840.40, after that you’re home free with respect to social security. They also give you the scenario where the $94,200 is entirely self-employment income, in which case you’re on the hook for both sides (employee and employer) to the tine of 12.4% or $11,680.80.

Now, what happens when you have a mixture of both? If I made $50,000 from my job and $50,000 from self-employment, is social security taken out from the job income and then the double-hit social security taken from the self-employment? Or you do you take the double-hit first from your self-employment? I can’t seem to find any literature on it so if anyone knows and can point me to something “official” I would truly appreciate it!

{ 10 comments, please add your thoughts now! }

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10 Responses to “Social Security Payments and Self Employment Income”

  1. Trent says:

    Easiest thing would be to let TurboTax do it for you.

  2. jim says:

    True, but that’s after the tax year is over… if I know I am on the hook for more social security payments, I would more aggressively pursue some deductions (like getting a new phone, another monitor, etc.).

  3. Mike says:

    According to this link
    The social security tax is levied on wages and salaries up to a maximum annual amount,with employee and employer each paying the same amount of tax on the employee’s behalf.Workers earning more than the annual maximum taxable earnings and having more than one employer are vulnerable to excess social security tax withholding. The employee’s share of excess social security tax can be claimed as a (refundable) credit against the federal individual income tax, but the employer’s share cannot be claimed. If the employer’s share of the social security tax is borne by the worker, then the unrefunded excess employer’s tax is an additional tax on the worker. This additional tax is highly progressive,and its progressivity has increased in the past four decades.

  4. jim says:

    That still doesn’t explain it because I don’t pay the tax until the end of the year so I haven’t paid any excess employer’s tax.

  5. perry says:

    When I went from contractor to full time I had to take the double hit on social security. I brought my taxes into H&R Block just to make sure. The worst thing you can do is estimate too little and then you get screwed. I have tax documents you can look at so you can see for yourself.

  6. Jonathan says:

    In your case, I would assume that your employer has already paid their half of the taxes on your salary, so now you only have to pay the remainder.

  7. jim says:

    Jonathan: I’m wondering whether I’m need to pay the employer side of SS for income earned from my business, not whether my employer is paying their taxes.

  8. CK says:

    Jim-

    Ask Kerry at taxguru.net it might take him a bit to get back to you but he’ll give you the answer.

  9. John says:

    I believe the answer is pretty simple and is in the computation on the Schedule SE. In computing your income from self employment (i.e. subject to SE tax), you subtract any W-2 wages you have for the year. So the short answer is that you only have to pay SE tax on the amount that gets you from your W-2 total to the $94k limit. make sense?

    You’ll need to use the long SE. http://www.irs.gov/pub/irs-pdf/f1040sse.pdf

  10. Sounds like John nailed it. Thanks.


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