It gets to the point where enough is enough.
As the owner of an unincorporated small business, you may be at that point with the self-employment tax.
For 2022, lawmakers levy the self-employment tax at the painfully high rate of 15.3 percent on the first $147,000 of your net self-employment income:
12.4 percent for the Social Security tax component and
2.9 percent for the Medicare tax component.
The $147,000 Social Security tax ceiling is up from the $142,800 ceiling for 2021, and that ceiling will only worsen. See the SIDEBAR at the end of this article.
Above the $147,000 Social Security tax ceiling, the Medicare tax component of the self-employment tax continues at a 2.9 percent rate before increasing to 3.8 percent at higher levels of net self-employment income, up to infinity, thanks to the 0.9 percent additional Medicare tax.
Of course, you already know all that! But we occasionally need to take a fresh look at a situation to appreciate how dire it has become.
Say your self-employed Schedule C income for 2022 will be $200,000. After multiplying the $200,000 x 92.35 percent on your Schedule SE, you find that your 2022 self-employment tax bill will be a whopping $23,584.
Oof! That’s a lot of cash down the chute! As the SIDEBAR at the end of the article shows, the Social Security Administration forecasts that the Social Security tax component of the self-employment tax will quickly get much worse.
Have you reached the self-employment tax tipping point? If so, this article shows you how to ... Log in to view full article.