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• ##### He paid a lower rate than I paid, or pretty(0+ / 0-)

close.

I had to pay payroll taxes on every dollar I earned.
That starts me out at 12% before I pay so much as a dollar in federal income tax.

LG: You know what? You got spunk. MR: Well, Yes... LG: I hate spunk!

[ Parent ]

• ##### I hate to do this..(1+ / 0-)
Recommended by:
dinotrac

.. but if you're self-employed, you actually pay 15.3% in FICA taxes. 12.4% to Social Security (6.2% each for both the employee and employer portion) and 2.9% for Medicare.

• ##### I used to think that, til somebody here corrected(1+ / 0-)
Recommended by:
helpImdrowning

me.

And -- before I begin, thanks for making me do the math again.  The correct number is 14.2%, not 12%. Let me explain why:

That 15.3% is actually based on the gross that would be displayed on your paycheck if you were working for an employer, so it changes the numbers just a hair.

So...let's imagine a \$100.00 paycheck:

Employee's share:  6.2% SS
1.45% Medicare

Employer's share: the same, and that's where the math gets hosed.

If you view all of the payroll taxes as coming from the "payments to/for employees" bucket, then you are actually being paid \$107.65 gross, not \$100. Doing a little bit of math -- ie, \$15.30 /107.65 = 14.2%

Wait -- I have an out!!!
I think I originally did the calculation when the 2% payroll tax cut was in effect.
That's my story.
I'm sticking to it.
;0)

LG: You know what? You got spunk. MR: Well, Yes... LG: I hate spunk!

[ Parent ]

• ##### But if you're paying yourself that \$7.65, isn't it(0+ / 0-)

essentially the same thing?

• ##### Yes it is. The difference is that, when (1+ / 0-)
Recommended by:
helpImdrowning

calculating your percentage, you need to include the employer's share as part of your gross pay. That knocks the "real" percentage of gross down a bit by redefining the gross up a bit.

LG: You know what? You got spunk. MR: Well, Yes... LG: I hate spunk!

[ Parent ]

• ##### And he did in fact pay self-employment taxes.(2+ / 0-)
Recommended by:
helpImdrowning, rainmanjr

\$6930 is listed as the amount. That's because of both the cap on income subject to the tax (just like regular SS and Medicare taxes) and the fact that not all his income came from self-employment (we are paying him a salary to work for us at the moment too, after all.) so while it's quite a bit less than 12% of his income (1.15%, actually) he does indeed pay this tax.

Strategy without tactics is the slowest route to victory, tactics without strategy is the noise before defeat. Sun Tzu The Art of War

[ Parent ]

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