Definition and Example of the Self-Employed Contributions Act (SECA) Tax
If you’re self-employed, you pay the Self-Employed Contributions Act (SECA) tax to help fund Social Security and Medicare. If you have $400 or more in net self-employment earnings in a given year, or $108.28 in church-employee income in a year, you must pay the SECA tax for that year.
The SECA tax rate is 15.3%, which is assessed on 92.35% of your net earnings from self-employment. The 15.3% SECA tax rate breaks down into 12.4% for Social Security taxes and 2.9% for Medicare taxes.
- Alternate name: Self-employment tax
- Acronym: SECA tax
How To Calculate the SECA Tax
Net earnings is calculated by subtracting your ordinary and necessary business expenses from your gross self-employment income.
Let’s say you grossed $150,000 and have $50,000 in ordinary and necessary business expenses. You would owe $14,129.55 in self-employment taxes, assuming you have no other earned income during the year. Here’s how that breaks down:
$150,000 - $50,000 = $100,000
$100,000 x 92.35% = $92,350
$92,350 x 15.3% = $14,129.55
How Does the SECA Tax Work?
Unlike the Federal Insurance Contribution Act (FICA) tax, which is paid through an employee’s withholdings, self-employed taxpayers are responsible for paying their SECA tax obligation themselves through estimated tax payments every quarter, through a payment made along with an extension of time to file their tax return, and/or through a payment made when filing their income tax return.
Although you should generally estimate your SECA tax throughout the year as part of determining your quarterly tax due, your actual SECA tax liability for the year is calculated on Schedule SE, which is submitted along with Form 1040. Schedule SE uses information calculated on Schedule C, on which you calculate your net earnings from self-employment.
You do not make separate SECA tax payments and regular income tax payments; they are generally combined and paid together. That said, because the SECA tax is paid in addition to regular income taxes, it is possible for you to owe SECA tax but owe no regular income tax. This is generally the case when you have net earnings from self-employment of at least $400 but your net taxable income from the year is less than the standard deduction amount for your filing status.
The SECA tax is calculated at the individual level. Even if a married couple files jointly, each spouse’s SECA tax obligation for the year is calculated separately from their spouse’s.
Types of SECA Tax
The SECA tax has two components: the Social Security tax and the Medicare tax.
Social Security Tax
The Social Security component of the SECA tax is equal to 12.4% of 92.35% of your net earnings from self-employment. However, there is an annual wage base limit.
For tax year 2021, only the first $142,800 of combined wages, compensation, and self-employment income is subject to the Social Security component of the SECA tax. This amount is known as the annual Social Security wage base limit, and it changes every year. In 2022, the wage base limit is set higher at $147,000.
For example, let’s say you earned $150,000 in 2021 from all wages, compensation, and self-employed income. You would only pay the Social Security component of the SECA tax on the first $142,800. The Social Security tax would not apply to $7,200 of your earnings since that is the income above the wage base limit.
The Medicare component of the SECA tax is equal to 2.9% of 92.35% of your net earnings from self-employment.
Unlike the Social Security tax, the Medicare tax does not have a wage base limit. The tax is assessed on your combined net earnings from wages, compensation, and self-employment income.
Additional Medicare Tax
If your combined wages, compensation, and self-employment income exceed a certain amount for your filing status, you are subject to pay an Additional Medicare Tax of 0.9% on wages, compensation, and self-employment income. This tax is not considered part of the SECA tax.
The income thresholds for paying the Additional Medicare Tax are as follows:
|Filing Status||Income Threshold|
|Married Filing Jointly||$250,000|
|Married Filing Separately||$125,000|
|Head of Household With Qualifying Person||$200,000|
|Qualifying Widow(er) With Dependent Child||$200,000|
SECA Tax vs. FICA Tax
The SECA tax and the FICA tax are similar; they have the same tax rates and fund the same programs: Social Security and Medicare.
The difference between these two taxes is who pays them. Self-employed individuals pay the SECA tax, while employees and their employers pay the FICA tax. The FICA tax is broken down like this:
- Social Security: 1.45% for the employer and 1.45% for the employee
- Medicare: 6.2% for the employer and 6.2% for the employee
Do I Need To Pay the SECA Tax?
If in 2021 your net earnings from self-employment were $400 or more and you do not make more than $142,800 from other employment, or you earned $108.28 in church-employee income, you likely need to pay the SECA tax. But if you have less than $400 of net earnings from self-employment for the given year, you will generally not have to pay the SECA tax for that year. The SECA tax rates for self-employment income are the same in 2022, but with a higher wage threshold at $147,000.
However, it is possible to obtain an exemption from the SECA tax using Form 4631 if you are an ordained minister of a church, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner.
You may be able to avoid paying the SECA tax on the business part of your self-employed income by electing S-corporation status. However, you’ll still have to withhold FICA tax on the wages you pay yourself from your business. Electing S-corporation status may also cause you to incur more administrative costs and state taxes. It is important to research and consult with a tax professional to determine whether becoming an S-corporation is a smart move for your business.
How Much Is the SECA Tax?
The SECA tax is generally 15.3% of 92.35% of your net earnings from self-employment income. However, if you have other wages and compensation subject to the FICA tax, it is possible that some or all of your net earnings from self-employment income will be exempt from the 12.4% Social Security component of the SECA tax.
If you have to pay the SECA tax, you’re eligible to deduct one-half of the SECA tax amount on your individual tax return. This deduction is to give you some benefit for paying the “employer” portion of their Social Security and Medicare tax obligations on top of the “employee” portion.
Criticism of the SECA Tax
Some taxpayers have argued with the IRS over the belief that they should have the right to waive their Social Security benefits and therefore be returned the Social Security taxes they paid over their lifetime. Naturally, these taxpayers would not be interested in paying the SECA tax.
Another criticism of the SECA tax is that due to the Social Security wage base limit, the SECA tax is a regressive tax that has a higher effective rate for those who make less than $142,800 than for those who make more than $142,800. The same argument applies to those on either side of the $147,000 threshold in 2022.
- The Self-Employed Contributions Act (SECA) tax is paid on 92.35% of your self-employment net income to help fund Social Security and Medicare programs.
- If you have less than $400 of self-employment income for the year, you are generally not liable for the SECA tax.
- The SECA tax rate is generally 15.3%, although some self-employed taxpayers may have a different effective rate due to the Social Security wage base limit.
Social Security Administration. "What Are FICA and SECA Taxes?" Accessed Jan. 27, 2022.
Internal Revenue Service. "Self-Employment Tax (Social Security and Medicare Taxes)." Accessed Jan. 27, 2022.
Internal Revenue Service. "Topic No. 554 Self-Employment Tax." Accessed Jan. 27, 2022.
Social Security Administration. "2022 Social Security Changes—COLA Fact Sheet." Accessed Jan. 27, 2022.
Internal Revenue Service. "Topic No. 751 Social Security and Medicare Withholding Rates." Accessed Jan. 27, 2022.
Internal Revenue Service. "Questions and Answers for the Additional Medicare Tax." Accessed Jan. 27, 2022.
Internal Revenue Service. "The Truth About Frivolous Tax Arguments - Section I (D to E)." Accessed Jan. 27, 2022.