Self-Employed Contributions Act (SECA) Tax: What It Is and How It Works

Key takeaways
* SECA requires self-employed individuals to pay the Social Security and Medicare taxes that employers and employees normally share.
* The combined self-employment tax rate is 15.3% (12.4% Social Security + 2.9% Medicare); an additional 0.9% Medicare surtax can apply at high income levels.
* SE tax is calculated on net earnings from self-employment (gross business income minus allowable business expenses).
* Net earnings below $400 generally are not subject to SE tax.
* You may deduct the employer-equivalent portion (half) of the SE tax when computing income tax, but this does not reduce the net earnings used to calculate SE tax.

What is SECA tax?
The Self-Employed Contributions Act (SECA) tax is the mechanism by which self-employed workers pay Social Security and Medicare taxes. Because self-employed persons act as both employer and employee, they are responsible for the entire payroll tax contribution that would otherwise be split between an employer and an employee.

How SECA tax is calculated
* Rate breakdown: 12.4% for Social Security + 2.9% for Medicare = 15.3% total.
* Social Security portion is subject to an annual wage base limit (examples from recent years: $160,200 for 2023 and $168,600 for 2024); earnings above that base are not subject to the 12.4% Social Security tax.
* Medicare has no wage base limit; all net self-employment earnings are subject to the 2.9% Medicare tax.
* Additional Medicare surtax: a 0.9% surtax applies to self-employment earnings above certain thresholds ($200,000 for single filers; $250,000 for married filing jointly; $125,000 for married filing separately).
* SE tax is assessed on net earnings from self-employment — gross business income minus allowable business expenses. SE tax generally applies only if net earnings are $400 or more for the year.

Deductions and interactions with income tax
* You can deduct the employer-equivalent portion of SE tax (half of the total SE tax) as an adjustment to income on your individual tax return. This reduces your income tax liability but does not change the net earnings used to compute SE tax.
* Ordinary business expenses (office supplies, equipment, vehicle expenses, home office, insurance, etc.) reduce net earnings and therefore can lower SE tax liability.

Reporting and payment
* Self-employed individuals report SE tax on Schedule SE attached to Form 1040.
* Because self-employed workers don’t have employer withholding, SE tax (and estimated income tax) is typically paid via quarterly estimated tax payments.
* A Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) is required to file and pay.

Special situations
* Foreign self-employment income: SE tax generally applies to self-employment income earned abroad by U.S. persons, but totalization agreements with some countries prevent double payment of social taxes. A certificate of coverage from the relevant authority documents exemption from foreign social security taxes.
* Church and certain religious organization employees: specific exemptions may apply for certain church-related work.
* High earners: the additional 0.9% Medicare surtax applies when income thresholds are exceeded.

Practical tips for self-employed taxpayers
* Track and document all allowable business expenses to reduce net earnings subject to SE tax.
* Make timely quarterly estimated payments to avoid underpayment penalties.
* Consult the Social Security Administration or the IRS about totalization agreements and certificates of coverage if you earn income while working abroad.
* Use Schedule SE and Form 1040 instructions (or tax software/a tax professional) to ensure correct calculation and reporting.

Bottom line
SECA tax ensures that self-employed individuals fund Social Security and Medicare by paying both employer and employee portions of those payroll taxes. While the 15.3% rate is higher than the employee share alone, tax rules allow partial relief—most notably the deduction of the employer-equivalent portion of SE tax and deductions for business expenses—to reduce overall tax burden. For complex situations (foreign work, high incomes, or special exemptions), check IRS guidance or consult a tax professional.

Sources (selected)
* Internal Revenue Service — Self-Employment Tax (Social Security and Medicare Taxes)
* Social Security Administration — FICA and SECA information