Self Employed Contributions Act (SECA)

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Definition of 'Self Employed Contributions Act (SECA)'

The Self-Employed Contributions Act (SECA) is a United States federal law that requires self-employed individuals to pay Social Security and Medicare taxes. The law was enacted in 1954 and is administered by the Internal Revenue Service (IRS).

Self-employed individuals are required to pay both the employer and employee portions of Social Security and Medicare taxes. The self-employment tax rate is 15.3%, which is the same as the combined rate for employees. However, self-employed individuals are allowed to deduct half of their self-employment taxes from their income taxes.

The amount of self-employment taxes that a self-employed individual owes is based on their net earnings from self-employment. Net earnings from self-employment are defined as the individual's gross income from self-employment minus any business expenses that are deductible for federal income tax purposes.

Self-employed individuals are required to file Form 1040 Schedule SE with their federal income tax return to calculate and pay their self-employment taxes. Form 1040 Schedule SE is also used to calculate the amount of the self-employment tax deduction that the individual is entitled to.

The self-employment tax is a significant cost for self-employed individuals. However, it is important to note that the self-employment tax provides important benefits for self-employed individuals and their families. Social Security benefits include retirement benefits, disability benefits, and survivor benefits. Medicare provides health insurance coverage for people who are 65 years of age or older, people who are disabled, and people with end-stage renal disease.

If you are self-employed, it is important to understand the self-employment tax and how it affects you. You should consult with a tax professional to make sure that you are properly paying your self-employment taxes.

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