Self employment tax on someone who falls below the poverty line - can this be right?

[Broomstick]

@misterW

Let’s say a self employed person manages to scrape up $7000 in a year. They are then expected to pay back approximately 15% of it in taxes? Is this correct in that there is no sliding scale for self employment income? You would pay 15% if you make $90,000 and you pay 15% if you make $5000? The only exception seemed to be if you made under $400, which isn’t much of an exception.

Am I missing something?

Nope.

I’m another person chiming in as having been there and done that. You can be well below the poverty line and still have to pay self-employment tax. Which is why I become enrage with a white-hot heat when some asshole claims poor people don’t have to pay taxes. We do. We may not pay every tax someone middle-class or higher pays, but we sure as hell pay taxes, too,

[Colibri]

@Broomstick

Nope.

I’m another person chiming in as having been there and done that. You can be well below the poverty line and still have to pay self-employment tax. Which is why I become enrage with a white-hot heat when some asshole claims poor people don’t have to pay taxes. We do. We may not pay every tax someone middle-class or higher pays, but we sure as hell pay taxes, too,

Just as a reminder, this is an old thread. You already said that four years ago.

[Broomstick]

Yes, I was going to go back and edit that acknowledging that, but then I got a “down for maintenance error” for the Dope and now the edit window has passed. Darn zombies!

[UltraVires]

Now, in fairness, as those on the left remind us in every social security thread, these taxes do not go into the general fund. They go to pay your retirement benefits when you turn 62 or 65 based upon your income. It makes sense that a person should have to pay from the first dollar to get those benefits, and be capped at a certain income level as the person will not receive benefits when they retire at an amount exceeding that income level.

Yes, as I said 4 years ago, these taxes are a real bitch to small business owners. Maybe you all want to join the GOP plan (since abandoned) to make social security voluntary and you won’t have to pay, no?

[Broomstick]

Absolutely not.

My objection - both then and now - was to people insisting that the poor pay no taxes, not to the tax itself. Sure, I don’t like paying taxes. I don’t like a lot of things I still have to do in life.

The problem with making social security voluntary is that means tens of millions will reach retirement age in even worse financial situations than is currently the case. The average American is pretty crap at dealing with the financial present, much less the financial future. Also, most would be pretty crap at managing their own investments - the GOP plan pretty much required that everyone either be an investment expert or hire an investment expert, which always struck me as unrealistic.

[doreen]

@ezeder

I very much disagree that it is the same exact thing. With regular W2 income, you can rightly receive a tax deduction for children and a significant part of the tax will be returned. Not possible with the self employment tax. I am a mother and the sole earner in my family, and earning well below the poverty level. All my income is under the “self-employed” category. Within the earned income tax realm, it is recognized as inhumane that I would contribute 15% of my below poverty line income when I have a child to care and provide for. Not so in the self-employment tax realm. It is completely unjust and squeezes poor families into subservient roles in society. It is a big problem of inequity and equal access to opportunity. I hope we can shift the dialogue!

You are incorrect. There are only two real differences between Social Security/Medicare (FICA) and self -employment taxes

1. The employer pays half of FICA taxes, while the employee pays the other half. An employee will see 7.65 % deducted from her pay. Someone who is self-employed pays both the employer’s half and the employee’s half as that person is both the employer and employee.
2. The self employment tax appears on tax returns along with income tax but FICA does not. I think perhaps this is what throw some people. The above quote says that “With regular W2 income, you can rightly receive a tax deduction for children and a significant part of the tax will be returned. Not possible with the self employment tax” and that’s true for income tax. It is not true for FICA- I cannot get a refund of my FICA taxes because I have dependents. If I anticipate my income being low enough, I can complete my W4 so no taxes are withheld. I cannot do so with FICA -I will still have FICA withheld at the same rate whether I make minimum wage or 100K per year. There are a few exceptions for FICA taxes, but those exceptions will not cover SE income*

Another point is that both FICA and SE tax both only apply to earned income - it doesn’t apply to any other sort of income. I pay neither FICA nor SE tax on gambling winnings, unemployment benefits , profits from the sale of my house and so on.
I sometime wonder if those who think self-employment tax is an extra tax on the self-employed rather than simply a different name/mechanism to collect what are essentially FICA taxes have ever worked for someone else and had taxes withheld.

• For example,income which is earned in a public sector job with a pension may be exempt from FICA., but by definition you can’t have self-employment income that meets that requirement.

[Hari_Seldon]

@septimus

And note that this self-employment tax must also be paid by ex-pats; it is NOT subject to the Foreign Earned Income Exclusion.

Unless I am very mistaken this is true only if you live in a jurisdiction that does not have the equivalent social benefits. Once, some over-zealous IRS hack tried to get me to pay. I photocopied the lines in the tax instructions that said that and mailed it to him. No reply.

[D_Anconia]

@Broomstick

My objection - both then and now - was to people insisting that the poor pay no taxes, not to the tax itself.

IME, when people complain about their tax money going to things they don’t support, such as military spending or NEA grants, they’re actually referring to federal income taxes.

Some percentage > than 40% don’t pay any federal income tax at all.