Self Employment Tax

[Martin Vilarino]

Hi BP community,

Does anybody know how the self employment tax works? I know it's 15.3%, but does it apply only if you have an LLC? And what if you currently have a full time job? Thanks so much in advance!

[Natalie Kolodij]

Self employment tax is best explained as this: 

When you work for someone else and you're an employee you notice all of those small fees taken out of your check..

FICA , SS, Medicare 

Well normally- you the employee pay half...and the employer pays half. 

When you're self employed you're responsible for both halves which is about 15.3% 

As mentioned Social security maxes out at a point- so if you've already paid in the full amount via your 9-5 job...you won't continue to pay the SS tax portion. 

Self employment tax is incurred whether in an LLC or your personal name.

An S corporation allows you to avoid self employment tax by paying a reasonable salary instead (since salary is through payroll and incurs those taxes). However, if you make under $70k the costs of the S corp likely won't out weigh the savings...also...there can be some issues if you're a RE agent and utilizing an S corp. 

I would work with a tax professional to help with that once you reach that level.