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Updated for 2011

Social Security and Medicare Taxes

Who Pays Social Security and Medicare Taxes?

Employees, employers, and self-employed persons pay social security and Medicare taxes.

Social security and Medicare taxes are used to fund the Social Security system. These taxes are referred to as FICA taxes (Federal Insurance Contributions Act) when referring to employees and employers and self-employment taxes when referring to self-employed persons (Schedule C and F filers).

If a self-employed person has a job in addition to being self-employed, the combined income from gross wages from the job and net income from self-employment are counted toward the maximum social security income base to which the social security tax rate is applied.

Social Security and Medicare Tax Rates

The maximum social security and Medicare tax rates for 2011 are:

Self-employed:

Self-employment tax rate for 2011:
- 13.3%
  - Social security portion: 10.4%
  - Medicare portion: 2.9%

Employer/Employee:

Social Security Rate for 2011:
- 13.3%
  - Employee's share: 4.2%
  - Employer's share: 6.2%
Medicare Rate for 2011:
- 2.9%.
  - Employee's share: 1.45%
  - Employer's share: 1.45%

Maximum Income Base of Security

For 2011, the maximum income base subject to social security taxes is $106,800. There is no such limitation for Medicare taxes.

If you're self-employed, you take your Schedule C net profit and multiply it by a fraction indicated on Schedule SE to determine your net earnings from self-employment. The fraction is .9235 (92.35%).

Net earnings from self-employment is multiplies by the 13.3% self-employment rate to find your self-employment tax. You may claim a portion of your self-employment tax as a deduction of Form 1040, line 27.

If you also have a job, add the gross wages from your W-2 form to your net earnings from self-employment, shown on Schedule SE. The maximum combined amount subject to self-employment tax (13.3%) is $106,800 for 2011.

There is no income limitation for assessing Medicare taxes.

Deducting a Portion of Self-Employment Tax

The amount of the self-employment tax deduction you my claim on Form 1040, line 27 depends on the amount of self-employment tax computed on Schedule SE.

If the self-employment tax on Schedule SE is $14,204.40 or less, multiply it by 57.51% to find your deduction.
If the self-employment tax on Schedule SE is more than $14,204.40, multiply the tax by 50% and add $1,067 to the result to get your deduction.

Depositing Employment Taxes

Employers:

There are two methods for depositing employment taxes.

Mail or deliver the funds
Electronic Federal Tax Payment System (EFTPS)

When to Deposit Employment Taxes

There are two deposit schedules for employers depending on the amount of the tax liability:

Very small employers may be able to pay employment taxes with Form 941.

Self-Employed:

Self-employed persons calculate self-employment tax on Schedule SE at the end of the year and attach it to Form 1040, along with Schedule C (or F).

During the year you may have to make quarterly estimated tax payments to cover both your self-employment tax and income tax liability.

Employment Taxes

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