Sharon, we got some sizzle to wake you up today, talking about the self-employment tax. Okay, if you think that, wake me up. Let's go. I know you love the ones like this. So, you know, we're just, I'm hopefully not gonna get too in depth with this, but it is something for every 1099 CRNA out there to understand how it works and really how it's calculated and why that's important as they look at their options. So, basically, the self-employment tax is paid for by anybody that works for themself. It's basically your Social Security and your Medicare tax. You know, when you worked at the hospital, Sharon, you paid 7.65% and your employer maxed you 7.65% for a total of 15.3. Now that you're self-employed, guess what? You have to pay it. You pay both sides. So, it's an important topic. It's something that you need to understand. And by the way, the self-employment tax is made up of two parts. It's 6.2% for Social Security and 1.45 for Medicare. We're gonna get in a little bit more on that, but that's an important point here in just a minute. So, total 12.4 to Social Security, 2.9 to Medicare. Who has to pay it? Well, if you're a sole proprietor, you're a 1099 CRNA out there, you've not incorporated, you don't have a LLC set up, you do have to pay the self-employment tax if you're working under that. If you're an LLC owner or PLLC, you have to pay the self-employment tax. If you're in a partnership, you know what, Sharon, if you and I are in a partnership and we make money in that partnership, both of us have to pay the self-employment tax. Independent contractors, any independent contractor that receives a 1099 MISC miscellaneous, you pay the self-employment tax. If you're an LLC or PLLC with an S corporation election, you pay the self-employment tax, but we can limit that to a little bit of an extent with the S corporation. How do you calculate it? You basically take your business income minus your allowable business expenses, and then you multiply it for the social security tax, that number by 12.4, and you multiply the Medicare tax by 2.9. Now, the second step there, there is a maximum number for 12.4. Sharon, do you remember working, and then you got a raise all of a sudden, you're like, hey, I got a little extra money in my check. Usually about August. It used to be June, it's moved up a little bit now. It used to be June whenever I first started working, then it got moved on up. So we're putting more and more into Medicare. Right. So social security cap is capped at a certain dollar amount. And by the way, nobody's talking about it, but that dollar amount has been going up and up and up each year. Well, social security is broken, they're looking for revenue, this is one way they're getting it. It's basically a tax increase, and nobody's talking about it. That's a good, yeah. Yes, I never quite thought about it like that, but you're exactly right. Yeah. So for this year, it's right around that $160,000 level. After that, you pay zero social security tax. But the Medicare tax, there is no cap on. Right. So no matter how much money you make, you're still paying that 2.9% on the Medicare tax. So questions, Sharon, about this? Okay. Any questions? No, I get my little statements that tell me what I've got to pay on this. Yeah. From the IRS. Okay, all right. So it's not real hard to do. Now, let me explain something here. Okay. Here, we're talking about a scenario of you are not an S corporation, because I said, calculate your business income minus your allowable expenses. Right. If you're an S corporation, you take your salary, and you multiply it by 12.4%, up to the cap, 160, and you take your Medicare, multiply it by your salary. It's not all the earnings that you made. So let me give you an example. Let's say that your company made $300,000. Now, the social security cap is right around 160. I can't remember exactly what it is, but it's about 160,000. So up to 160, you pay 12.4. And for the whole 300,000, you're going to pay 2.9. If you're an S corporation, let's say we set your salary at $100,000, again, for round numbers. Sharon, you're going to pay social security tax on 100,000, 12.4. Medicare tax on 2.9, times 100,000. That is less than what you would pay if you were not an S corporation. That's the sizzle. That's why this is important. This is what the S corporation does for you. It saves the self-employment tax, if it's administered right and set up correctly. For an example, let's say your self-employment tax is calculated on an income of $50,000. If you had $5,000 in business expenses, you'd pay $7,056. If you had $200,000, you'd pay $28,224 in self-employment tax. If your salary in the S corp, let's say your company made 200, but your salary is 100, then you'd only pay $14,112 instead of the 28 to 24, thereby saving $14,112. Questions? Is that clear as a bell? What happens? How do you pay for the self-employment tax? It's basically paid for on your 1040. You do a schedule SE. It's paid with your regular tax return and so forth. They justify and kind of sure it up with that 1040. When you're paying your estimated quarterly tax payments, majority of CRNAs should be doing, you also pay in because they don't segregate it out. Oh, you didn't pay self-employment versus income. It's one number that you're going to owe, even though it is self-employment and other tax, it's all going to go together for that. And you can do a self-employment tax worksheet, so that you know exactly what you're going to owe from self-employment. If you don't run a payroll, this is something you might want to do. If you're just an LLC, you want to know how much self-employment you're going to owe on what you've made, boom, you can do this little tax worksheet and it'll explain all that to you. If you're not that savvy and you don't want to do it, you better have somebody do it for you.

self-employment tax

Social Security

Medicare

sole proprietors

S corporations