Understanding Self-Employment FICA Taxes for 1099 Workers

Please visit our Resources page for all your tax preparation needs

Long Version:

If you’re a 1099 worker, understanding your tax obligations can be a bit complex. One of the key components of these obligations is the Federal Insurance Contributions Act (FICA) tax. FICA is a U.S. federal payroll tax that funds Social Security and Medicare. As a self-employed individual, you’re responsible for the entire amount of FICA tax, often referred to as Self-Employment tax.

Here’s a summary of some key points to keep in mind when calculating your self-employment taxes:

Self-Employment Tax Rate

The self-employment tax rate for 2023 and 2024 is 15.3%. This rate consists of 12.4% for Social Security and 2.9% for Medicare.

Calculating Your Self-Employment Tax

To calculate your self-employment tax, you’ll first need to determine your net earnings. This is typically your total income from self-employment minus any deductible business expenses.

Business expenses can vary widely depending on the nature of your work, but here are some common examples:

• Home Office Expenses: If you use part of your home exclusively for your business, you may be able to deduct a portion of your housing expenses, such as rent or mortgage interest, property taxes, and utilities.
• Travel Expenses: If you travel for business, you may be able to deduct your transportation, meals, lodging, and other travel-related expenses.
• Vehicle Expenses: If you use your vehicle for business, you may be able to deduct your car expenses. You can choose to use either the standard mileage rate or your actual car expenses.
• Supplies and Equipment: The cost of supplies and equipment you use in your business can be deducted.
• Professional Services: Fees paid to lawyers, accountants, consultants, and other professionals are deductible.
• Advertising and Promotion: The cost of advertising and promoting your business is deductible.

Once you’ve calculated your net earnings, you can then calculate your tax base by multiplying your net earnings by 92.35%. This reduces your net earnings to the tax base that the self-employment tax rate is applied to.

Finally, you can calculate your Self-Employment tax by multiplying your tax base by the self-employment tax rate (15.3%).

Social Security Wage Base Limit

The wage base limit for the Social Security portion of the FICA tax was $160,200 for the year 2023 and increased to $168,600 for the year 2024. Any income above these limits is not subject to the Social Security tax, but there’s no wage base limit for the Medicare portion of the tax.

Additional Medicare Tax

There is an additional Medicare tax of 0.9% that applies to individuals who earn wages, self-employment income, and railroad retirement (RRTA) compensation above certain thresholds. The thresholds for the additional Medicare tax are as follows:

• $250,000 for married filing jointly
• $125,000 for married filing separately
• $200,000 for all other taxpayers

This means if you’re a single filer and your income exceeds $200,000, or if you’re married filing jointly and your combined income exceeds $250,000, you’ll be subject to the additional 0.9% Medicare tax on the excess income.

Detailed Examples

Let’s walk through three examples of calculating self-employment taxes for single taxpayers in 2024. We’ll use the following information:

• Self-Employment tax rate: 15.3%
• Social Security portion: 12.4% (up to wage base limit of $168,600)
• Medicare portion: 2.9% (no wage base limit)
• Additional Medicare tax: 0.9% (on income above $200,000)

Example 1: Albert

Albert has a 1099 gross income of $150,000 and business expenses of $10,000.

1. Gross Income: $150,000
2. Net Earnings (Gross Income – Business Expenses): $150,000 – $10,000 = $140,000
3. Tax Base (Net Earnings * 0.9235): $140,000 * 0.9235 = $129,290
4. Self-Employment Tax:
   • Social Security Tax (Tax Base * 12.4%): $129,290 * 0.124 = $16,031.96 (under the limit of $168,600)
   • Medicare Tax (Tax Base * 2.9%): $129,290 * 0.029 = $3,749.41 (no limit)
   • Additional Medicare Tax: $0 (income is under $200,000)
5. Total FICA Tax (Social Security Tax + Medicare Tax + Additional Medicare Tax): $16,031.96 + $3,749.41 + $0 = $19,781.37

Example 2: Bob

Bob has a 1099 gross income of $200,000 and business expenses of $10,000.

1. Gross Income: $200,000
2. Net Earnings (Gross Income – Business Expenses): $200,000 – $10,000 = $190,000
3. Tax Base (Net Earnings * 0.9235): $190,000 * 0.9235 = $175,465
4. Self-Employment Tax:
   • Social Security Tax (Tax Base * 12.4%): $168,600 * 0.124 = $20,906.40 (income exceeds the limit of $168,600)
   • Medicare Tax (Tax Base * 2.9%): $175,465 * 0.029 = $5,088.49 (no limit)
   • Additional Medicare Tax (Excess over $200,000 * 0.9%): ($190,000 – $200,000) * 0.009 = $0 (income is under $200,000)
5. Total FICA Tax (Social Security Tax + Medicare Tax + Additional Medicare Tax): $20,906.40 + $5,088.49 + $0 = $25,994.89

Example 3: Claire

Claire has a 1099 gross income of $400,000 and business expenses of $10,000.

1. Gross Income: $400,000
2. Net Earnings (Gross Income – Business Expenses): $400,000 – $10,000 = $390,000
3. Tax Base (Net Earnings * 0.9235): $390,000 * 0.9235 = $360,165
4. Self-Employment Tax:
   • Social Security Tax (Tax Base * 12.4%): $168,600 * 0.124 = $20,906.40 (income exceeds the limit of $168,600)
   • Medicare Tax (Tax Base * 2.9%): $360,165 * 0.029 = $10,444.79 (no limit)
   • Additional Medicare Tax (Excess over $200,000 * 0.9%): ($390,000 – $200,000) * 0.009 = $1,710 (income exceeds $200,000)
5. Total FICA Tax (Social Security Tax + Medicare Tax + Additional Medicare Tax): $20,906.40 + $10,444.79 + $1,710 = $33,061.19

I hope this blog post helps you understand the basics of self-employment taxes for 1099 workers. If you have any further questions, feel free to ask! 😊