For taxpayers who receive both salary as an employee and self-employment income as an independent contractor in the same year, which of the following statements regarding FICA and self-employment taxes is most accurate?

Question

Quizplus · Accepted Answer

When an individual has both salary as an employee and self-employment income as an independent contractor, FICA taxes are applied separately to each type of income. The Social Security tax has a limit (or cap) each year, and for 2021, the limit is $142,800. The salary earned as an employee is subject to Social Security tax up to the limit, and any self-employment income is also subject to Social Security tax up to the limit. However, the amount of Social Security tax paid on the salary and self-employment income combined cannot exceed the limit. Therefore, salary is first applied against the Social Security limit, and then any remaining limit is applied to the self-employment income. This means that it is possible for an individual to pay the maximum Social Security tax limit on just their salary or just their self-employment income, or a combination of both.

For Taxpayers Who Receive Both Salary as an Employee and Self-Employment