The federal government charges FICA, which stands for Federal Insurance Contributions Act. You’ve surely seen FICA tax deducted from your paychecks. You’ve actually seen only half of your FICA tax. Your employer pays the other half. FICA is typically 15.3% of your earnings. You pay 7.65% every payday and your employer pays the other 7.65%.
When you’re self-employed, you pay the full 15.3% of your earnings. Mark, my CPA friend, calls this the “self-employment penalty.” You have to budget at least 15.3% of your income for FICA tax. Tax laws, Social Security policies, and Medicare funding are subject to change. That’s why I am including this paragraph from the IRS’ web site:
“The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011. The self-employment tax rate for self-employment income earned in calendar year 2011 is 13.3% (10.4% for Social Security and 2.9% for Medicare). For self-employment income earned in 2010, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).”
Check with a CPA in your area for current information. Remember, you will be the employer and the employee.
Mark Anthony Germanos is the President of Cameron Park Computer Services, a premier Sacramento IT company providing IT services, IT solutions and IT support. Cameron Park Computer Services moves clients to the Cloud. “The Cloud is among the best IT solutions we’ve ever offered,” says Germanos, “I’ve been in the IT service and IT support business since 1992. When you run your business in the Cloud, your data is always available, available from anywhere and the cost is usually less. Does your IT company offer IT services, IT support and CloudU certified staff that can provide today’s IT solutions at affordable prices”? Cameron Park Computer Services does.