Reply #61: I thought the employer's portion was being cut as well - as a way to throw a bone to employers. No?

[kath]

And actually, currently the self-employed don't pay a full 15.3% - they never have. The actual tax is a bit less than that (maximum of 14.13%), and varies depending on your marginal tax rate. (it still does take a BIG bite out of self-employment earnings.)

The tax is calculated as 15.3% **of only 92.35% of profit** (up to the cap), THEN half of that amount is deducted from income on the 1040, so some money is saved on the INCOME TAX.
So, on each $100 (up to the cap), the total FICA is $14.13 (or 14.13%). But half of that (7.065%) is deducted from income -- so for someone whose marginal tax rate is 25%, for each additional $100 of profit, they would pay INCOME tax of 25% of ($100 - 7.065), which is 25% of $92.94 (there may be some slight rounding errors here), or $23.23, plus the $14.13 of FICA tax - for a total tax of $37.36 or 37.36%. Since their regular *income* tax would be 25% or $25.00, they are actually paying $12.36 EXTRA for their FICA, or 12.36% at this marginal rate.

For someone in the zero bracket, ie. who makes too little to be subject to income tax, the effective FICA rate would be the full 14.13% that we came up with in the first calution.
For someone in the 10% marginal tax bracket , the effective marginal FICA rate is 13.42%.
"----------------" 15% "--------------------------------------------------------" 13.07%
"----------------" 25% "--------------------------------------------------------" 12.36%


End of math lesson - WHEW! :-)