In spite of the general rules mentioned
above, self-employment tax may be imposed on a nonresident alien under the
terms of an international social security agreement or Totalization
Agreements.
The United States has entered into social security
agreements with foreign countries to coordinate social security coverage and
taxation of workers employed for part or all of their working careers in one
of the countries. These agreements are commonly referred to as Totalization
Agreements. Under these agreements, dual coverage and dual contributions of taxes for the same work
are eliminated. The agreements generally make sure that social security
taxes including self-employment tax are paid only to one country.
The Federal Insurance Contributions Act (FICA) tax
includes two separate taxes. One is social security tax and the other is
Medicare tax. Different rates apply for each of these taxes.The current tax rate for social
security is 6.2% for the employer and 6.2% for the employee, or 12.4% total.
The current rate for Medicare is 1.45% for the employer and 1.45% for the
employee, or 2.9% total. Only the social security tax has a wage base limit.
The wage base limit is the maximum wage that is subject to the tax for that
year. For earnings in 2014, this base is $117,000. There is no wage base
limit for Medicare tax. All covered wages are subject to Medicare tax.
Beginning January 1, 2013, Additional Medicare Tax
applies to an individual’s Medicare wages that exceed a threshold amount
based on the taxpayer’s filing status. Employers are responsible for
withholding the 0.9% Additional Medicare Tax on an individual’s wages paid
in excess of $200,000 in a calendar year, without regard to filing status.
An employer is required to begin withholding Additional Medicare Tax in the
pay period in which it pays wages in excess of $200,000 to an employee and
continue to withhold it each pay period until the end of the calendar year.
There is no employer match for Additional Medicare Tax.
Anytime self-employment tax is mentioned, it only
refers to social Security and Medicare taxes. Self-employment tax is a tax consisting of Social
Security and Medicare taxes primarily for individuals who work
for themselves. This is most common when the individual has her own business
and no employer to tell her what to do and how to do her job. All your combined wages, tips, and net earnings
in the current year are subject to 2.9% Medicare tax, the
self-employment tax and also the social security tax or railroad retirement
tax.
In 2013 an additional Medicare tax rate of
0.9 % went into effect and applies to wages, compensation, and
self-employment income above a threshold amount received in
taxable years beginning after Dec. 31, 2012. You can deduct the employer-equivalent portion of
your self-employment tax in figuring your adjusted gross income.
This deduction only affects your income tax. Also, under Section 2042 of the Small Business Jobs
Act, a deduction, for income tax purposes, is allowed to
self-employed individuals for the cost of health insurance.
Social Security and Medicare tax may apply to
caregivers. Special rules apply to workers who perform
in-home services for elderly or disabled individuals
(caregivers). Caregivers are typically employees of the
individuals for whom they provide services because they work in the homes of
the elderly or disabled
