halle1 (02/05/83)
That is absolutely FALSE. Self employed have to pay an additional self-employnt tax that takes the place of FICA. It goes on your record for later SS payout. The kicker is that it is about 11%, not the 6.7% you pay now. Of course that is still less than your plus employer's contribution, but more than what you see going now. So if you want to be self employed merely to reduce SS contributions, forget it.
eager (02/05/83)
Self employed people must still pay Social Security. They file a 1040-SE with their income tax return. FICA is paid at about 150% of the normal employee rate (the full employee rate plus half the employer rate). That is something like 9-10%. Harry Brown's "How I Found Freedom in and Unfree World" is correct in what it states: when you hire someone as a contractor you are not obligated to pay FICA to the Feds, nor to withhold FICA or income tax. You have a lot less headaches & paperwork. But FICA still gets paid. Government employees (at the moment) and people covered by the Railroad Retirement Fund are exempt from SSS. I have been told that the IRS collects FICA from self-employed persons and forwards the money and info to the Social Security Administration. Failure to file the 1040-SE is not income tax evasion (as I understand it). The SSA will follow up in its own good time, if it does indeed follow up. I file my 1040-SE like a good boy, and hate to see that 10% come off the top. -- Mike Eager @ AMD
jlw (02/05/83)
Currently self employed persons pay FICA at a rate slightly lower that the sum of the employee's plus the employer's contributions. The SS compromise being worked on in congress will make this equal. Cheers Joe Wood ariel!jlw
kinch (02/05/83)
Self-employed persons must pay what is called the "self-employment tax" on their earnings (that is, what their business grossed less deductible expenses less capital reinvested), which replaces the FICA (SocSec) tax that ordinary employees pay. In one sense the tax is higher, since you pay a greater rate on your earnings (salary paid yourself), namely 9.3% in 1982, than regular employees, namely about 6% (?) in 1982. The same kind of ceilings for taxable income apply as with FICA taxes, however. In another sense, the tax is lower, since with FICA taxes the employer must also "contribute" an amount equal to the employee, which makes the effective tax about 12%, versus the 9.3% for self-employed persons. Whether you the employee or your employee really are paying this tax, or whether you split it between yourselves, is a matter of debate in economic theories, from what I've read. Richard Kinch vax135!cornell!tesla!kinch