Self Employment Tax

6 Replies

Hi BP community,

Does anybody know how the self employment tax works? I know it's 15.3%, but does it apply only if you have an LLC? And what if you currently have a full time job? Thanks so much in advance!

It doesn't matter if you're an LLC or not. It's classified as 1099 Tax Form where you're an independent contractor. Seems like you're getting started as an agent, that's definitely an independent contractor position where you're going to be responsible to pay your own taxes and not operate under W2 wages.

@Martin Vilarino

It depends on what activity you are doing and what structure you are doing the business within.

You may be responsible for Self-employment tax without an LLC.

If you have a full-time job and making above the "social security base", you may be responsible for paying less in SE tax.

You may want to consider speaking with a tax professional to go through the finer details.

There is also a qualified business income deduction that you may benefit from if you have a business where you pay SE tax.

Self employment tax is best explained as this: 

When you work for someone else and you're an employee you notice all of those small fees taken out of your check..

FICA , SS, Medicare 

Well normally- you the employee pay half...and the employer pays half. 

When you're self employed you're responsible for both halves which is about 15.3% 

As mentioned Social security maxes out at a point- so if you've already paid in the full amount via your 9-5 won't continue to pay the SS tax portion. 

Self employment tax is incurred whether in an LLC or your personal name.

An S corporation allows you to avoid self employment tax by paying a reasonable salary instead (since salary is through payroll and incurs those taxes). However, if you make under $70k the costs of the S corp likely won't out weigh the savings...also...there can be some issues if you're a RE agent and utilizing an S corp. 

I would work with a tax professional to help with that once you reach that level. 

Thank you so much for your responses. This is very helpful! What I'm deducing is that someone who is self employed will pay more taxes than somebody who makes the same income through an employer, because the self employed person is responsible for both the employer and employee portion of SS and Medicare? Except for any income above SS tax ceiling, where SS is no longer applicable. Sound about right? 

@Martin Vilarino You are correct.  Self-employment tax is the sleeper tax.  The politicians do not talk about it much, but rely on it to fund the government (which includes making social security and medicare payments to current retirees).  As far as the difference between an employee and a self-employed person, it appears that the self-employed person pays more tax than the employee, but then the self-employed person can reduce his SE tax via business expense deductions, plus he also receives profits from his efforts.  I prefer being self-employed, but then again, I'm in real estate and I'm unemployable.

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