What Are SECA Taxes and Who Has to Pay Them?
Understand how self-employment tax funds Social Security and Medicare. This guide covers the complete tax cycle, from liability calculation to its impact on your return.
The Self-Employment Contributions Act (SECA) establishes a tax on income for individuals who work for themselves. This tax is the self-employed equivalent of the Social Security and Medicare taxes (known as FICA) withheld from an employee’s paycheck, and it funds the same future benefits. Because self-employed individuals act as both the employee and employer, they are responsible for paying both portions of these taxes.
Determining Who Pays SECA Tax
An individual is required to pay SECA tax if they have net earnings of $400 or more from self-employment. This applies to people who operate a trade or business as an independent contractor, freelancer, or sole proprietor. It also includes members of a partnership that carries on a trade or business. Common examples include freelance writers, ride-share drivers, consultants, and small business owners who have not incorporated their business.
For tax purposes, being self-employed means you are in business for yourself and not considered an employee of someone else. Receiving a Form 1099-NEC for nonemployee compensation is a strong indicator that the payer considers you self-employed and that you may have a SECA tax obligation.
The determination is based on net earnings, which is the gross income from the business minus ordinary and necessary business expenses. This means that even if a business has significant revenue, SECA tax is only due if the profit exceeds the $400 threshold.
Calculating Your SECA Tax Liability
The calculation begins with your total net earnings from self-employment. Before applying the tax rates, you first multiply your total net earnings by 92.35%. This step accounts for the employer-equivalent portion of your SECA tax, making the taxable base comparable to an employee’s wages.
After finding the taxable portion of your earnings, you apply the two rates that make up the SECA tax. The Social Security component is 12.4% and the Medicare component is 2.9%, for a combined rate of 15.3%. For example, if your net earnings were $60,000, the amount subject to SECA tax would be $55,410 ($60,000 x 0.9235).
The 12.4% Social Security tax only applies to earnings up to an annually adjusted amount, which is $176,100 for 2025. The 2.9% Medicare tax applies to all of your net earnings with no upper limit. If you also have wages from an employer, those wages count toward the Social Security limit first.
Higher-income individuals may owe an Additional Medicare Tax. This 0.9% tax applies to net self-employment earnings that exceed certain thresholds: $200,000 for single filers and $250,000 for those married filing jointly. This tax is paid only by the individual and does not have an employer-equivalent portion.
The Self-Employment Tax Deduction
Self-employed individuals can take an income tax deduction for one-half of their total SECA tax payment. This is not a credit against the SECA tax itself but an “above-the-line” deduction that reduces your Adjusted Gross Income (AGI), which lowers your overall income tax liability.
The logic for this deduction is to create parity between self-employed individuals and employees. Employers can deduct the FICA taxes they pay on behalf of employees as a business expense. This deduction provides a similar benefit, acknowledging that the self-employed pay both the employee and employer tax portions.
Using the previous example, if your total SECA tax was $8,477.73 ($55,410 x 15.3%), your deduction would be $4,238.87. This reduction to your AGI can lower the amount of income subject to federal income tax.
Reporting and Paying SECA Taxes
Reporting and paying SECA tax involves several IRS forms. First, you determine your business profit or loss on Schedule C. This net profit figure is used on Schedule SE to calculate the actual SECA tax owed. The total SECA tax is then added to your income tax on Schedule 2 of Form 1040, while the deduction for one-half of your SECA tax is claimed on Schedule 1. Any Additional Medicare Tax is calculated on Form 8959.
Self-employed individuals must pay their tax liability, including income and SECA taxes, directly to the IRS. These taxes are paid throughout the year as quarterly estimated tax payments using Form 1040-ES. Failure to make these quarterly payments can result in underpayment penalties when you file your annual return.