Social Security Taxes

<div class="Section1"><br /> <br /> An individual whose net earnings from self-employment are $400 or more for the taxable year must pay the self-employment tax.<a href="#_ftn1" name="_ftnref1">¹</a> In 2025, such an individual must file a Schedule SE and pay Social Security taxes on up to $176,100 of self-employment income.<br /> <br /> The hospital insurance tax is imposed on all of a taxpayer’s self-employment income. However, an above-the-line deduction is permitted for one-half of the self-employment tax paid by an individual and attributable to a trade or business carried on by the individual (not as an employee).<a href="#_ftn2" name="_ftnref2">²</a> If the individual also works in covered employment as an <em>employee</em>, his self-employment income (subject to the self-employment tax) is only the difference, if any, between his “wages” as an employee and the maximum Social Security earnings base.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 6017.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  IRC § 164(f).<br /> <br /> </div>

<div class="Section1">In 2024, the maximum amount of income subject to Social Security taxes is $176,100 in 2025 (up from $168,600 in 2024, 160,200 in 2023 and $147,000 in 2022).<a href="#_ftn1" name="_ftnref1">¹</a><div class="Section"><br /> <br /> <em>Self-employment tax:</em> 15.30 percent (12.40 percent OASDI and 2.90 percent hospital insurance). In 2024, the OASDI tax is imposed on up to $176,100 of self-employment income for a maximum tax of $21,836.40. The hospital insurance tax is imposed on all of a taxpayer&rsquo;s self-employment income. However, an above-the-line deduction is permitted for one-half of self-employment taxes paid by an individual and attributable to a trade or business carried on by the individual (not as an employee) (<em><em>see</em></em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="8051">8051</a>).<a href="#_ftn2" name="_ftnref2">²</a> For compensation received in taxable years beginning after 2012, the hospital insurance tax is increased by 0.9 percent for wages above $250,000 for married taxpayers filing jointly and surviving spouses, $125,000 for married taxpayers filing separate, and $200,000 for single taxpayers and heads of households. The dollar thresholds for the 0.9 percent tax on the self-employment income of high wage earners are reduced (but not below zero) by wages subject to the FICA tax. The deduction for one-half of self-employment tax is not available for the additional 0.9 percent tax.<br /> <br /> <em>FICA:</em> 7.65 percent (6.20 percent OASDI and 1.45 percent hospital insurance) for the employer and 7.65 percent (6.20 percent OASDI and 1.45 percent hospital insurance) for the employee.<br /> <br /> The hospital insurance tax is imposed on all of a taxpayer&rsquo;s wages.<a href="#_ftn3" name="_ftnref3">³</a> For compensation received in taxable years beginning after 2012, the employee&rsquo;s portion of the hospital insurance tax is increased to 2.35 percent for wages above $250,000 for married taxpayers filing jointly (tax applies to combined wages of taxpayer and taxpayer&rsquo;s spouse) and surviving spouses, $125,000 for married taxpayers filing separately, and $200,000 for single taxpayers and heads of households.<br /> <br /> Back wages paid as the result of a settlement agreement are subject to FICA and FUTA taxes in the year the wages are actually paid, not in the year the wages were earned or should have been paid.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> <em>Tax on Investment Income.</em> For investment income (which excludes distributions from qualified plans and IRAs) received in taxable years beginning after 2012, an additional tax is imposed at 3.8 percent on the lesser of (1) net investment income, or (2) the excess of modified adjusted gross income over $250,000 for married taxpayers filing jointly and surviving spouses, $125,000 for married taxpayers filing separately, and $200,000 for single taxpayers and heads of households. For trusts and estates, the 3.8 percent additional tax is imposed on the lesser of (1) undistributed net investment income, or (2) the excess of adjusted gross income over the dollar amount for which the highest income tax bracket begins.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; www.socialsecurity.gov.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect; 164(f).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; IRC &sect;&sect; 3101(b), 3121(u).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp; <em>U.S. v. Cleveland Indians Baseball Co.</em>, 532 U.S. 200 (2001). See also <em>The Phillies v. U.S.</em> 153 F. Supp. 2d 612 (E.D. PA. 2001).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp; IRC &sect; 1411.<br /> <br /> </div></div><br />