At what point would a self-employed individual be able to start paying a lower rate of SE tax?

Question

At what point would a self-employed individual be able to start paying a lower rate of SE tax?

Answer 1

There is a limit to how much income you pay social security on each year - when you reach that limit, whether self-employed or as an employee, you don't pay social security on additional income for the year. For 2006 the number was $94,200. It'll probably be a little higher for 2007 but I don't know the exact amount.

You continue to pay the portion (2.9% for self-employed) that's for medicare, since there is no income limit for paying that.

Answer 2

For 2007, after your net earnings plus other wages exceed $97,500, the additional self-employment tax goes from 15.3% to 2.9%.

This is because you pay Social Security tax on the first $97,500 of wages, but Medicare tax on all wages.

Answer 3

2.9% goes on forever and the 12.4% is capped somewhere in the 100,000.00 range now; it used to be 94k but has increased (don't remember the exact figure).