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The medicare tax is a 20 % tax that applies to the self-employment income of individuals with incomes over $200,000. This article will discuss ways in which you can avoid paying the medicare tax and explain how this tax hits small businesses .
The medicare tax was originally established as a way for self - employed individuals to not have social security and medicare payments withheld from their paychecks , but it ended up costing those people much more because they had to pay taxes on the income themselves . The rate has changed over the years to reflect the deficit , but it has always been a very hefty tax that you should try to avoid .
Your gross self- employment income is simply your net income ( what you keep after paying taxes ) minus any allowable employee business expenses . The allowable expenses are your half of the self- employment tax , any pre-tax deductions on earnings ( i.e. health insurance ) , and any money spent on marketing or advertising not covered by reimbursements . These amounts are then added back into the total before calculating if you have to pay the medicare tax or not .
The medicare tax was originally established as a way for self - employed individuals to not have social security and medicare payments withheld from their paychecks , but it ended up costing those people much more because they had to pay taxes on the income themselves . The rate has changed over the years to reflect the deficit , but it has always been a very hefty tax that you should try to avoid .
Your gross self- employment income is simply your net income ( what you keep after paying taxes ) minus any allowable employee business expenses . The allowable expenses are your half of the self- employment tax , any pre-tax deductions on earnings ( i.e. health insurance ) , and any money spent on marketing or advertising not covered by reimbursements . These amounts are then added back into the total before calculating if you have to pay the medicare tax or not .
