How does the new tax on self-employment income interact with the current rules for the Self-employment Tax (SECA)?
Under current law, self-employed individuals must pay a Medicare tax (also known as Hospital Insurance tax, or HI) of 2.9 percent (1.45% “employer” and 1.45% on “employee”) on ALL self-employment income. Generally, self-employment income is comprised of earnings from self-employment activities minus the expenses associated with generating those earnings. For example, a Realtor might have gross commissions of $95,000 and expenses associated with that income of $35,000. That individual’s self-employment income would be $60,000 ($95,000 minus $35,000). Assuming no other earned income sources, this REALTOR would not be subject to the new tax. By contrast, a high producer Realtor might have net self-employment income of $280,000. If that Realtor were single, the tax would apply only to the $80,000 that exceeds the $200,000 AGI threshold. Thus, the additional new tax would be $720. ($280,000 minus $200,000 = $80,000) ($80,000 x .009 = $585). A married couple with earned income of $280,000 wo
