GroundSkill
Compute self-employment, household-employment, excess-withholding, and uncollected Social Security taxes
Payroll taxes follow the worker across jobs and roles. A freelancer, a family with household help, and an employee with two jobs each face a different reconciliation. This lesson computes each one and keeps the regimes separate.
The self-employment tax replaces the employer and employee shares for someone working for themselves. The base is net earnings from self-employment: gross income of the business minus deductions attributable to it, then multiplied by 92.35% on Schedule SE. Earnings of at least $400 bring the tax into play. The rate is 15.3% up to the $176,100 social security base for 2025 (12.4% plus 2.9%), then 2.9% above it, before any Additional Medicare Tax addressed in the next lesson:
\(\text{net earnings} = (\text{gross} - \text{attributable deductions}) \times 92.35\%\)
A loss in one business reduces the total; wages from a day job do not exempt side earnings.
Mara has $60,000 of freelance gross income and $10,000 of attributable office and supply deductions. Net before factor is $50,000. On Schedule SE she multiplies by 92.35% to reach $46,175 of net earnings, then applies 15.3% (within the base). Her $70,000 W-2 job does not remove the SE tax on the freelance $46,175.
26 CFR § 1.1402(a)-1 1.1402(a)-1(a)(1) — 1.1402(a)-1
(1) The gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by chapter 1 of the Code which are attributable to such trade or business, plusView on the source
Form 1040 Instructions Page 11
You had net earnings from self-employment of at least $400.View on the source
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deductions and multiply the difference by 92.35% (0.9235). Use Schedule SE (Form 1040) to figure your net earnings and SE tax.View on the source
Instructions for Schedule SE Page 1 — Maximum income subject to social security tax
Maximum income subject to social security tax. For 2025, the maximum amount of self-employment income subject to social security tax is $176,100.View on the source
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self-employment tax rate is 15.3% (12.4% social security tax + 2.9% Medicare tax).View on the source
Dana earned $1,900 doing freelance cleaning and had $1,520 of deductible business expenses. Does she owe self-employment tax?
A household employer withholds and pays employment taxes for domestic help when cash wages of $2,800 or more in 2025 go to any one employee. The test is per worker, in and around the home. Once met, the employer withholds the employee share of 7.65% and pays the matching employer share, reporting on Schedule H. Separately, total cash wages of $1,000 or more in any calendar quarter of 2024 or 2025 to household employees make FUTA apply to the household wages, reported on Schedule H: the FUTA tax is 6% of cash wages, with wages over $7,000 a year per employee not taxed. Amounts paid to a spouse, to a child under 21, or to a young minor employee are left out under the wages-not-counted rules. Federal income tax withholding for household help follows agreement with the worker.
Theo pays a nanny $800 per month, totaling $9,600. That exceeds $2,800 to one worker in 2025, so each payment carries 7.65% employee withholding plus the employer share, reported on Schedule H. A second worker paid $1,000 for the year stays below the per-worker threshold and triggers no social security or Medicare withholding.
Form 1040 Instructions Line 9 — Household Employment Taxes
1. You paid any one household employee (defined below) cash wages of $2,800 or more in 2025.View on the source
Form 1040 Instructions Line 9 — Household Employment Taxes
3. You paid total cash wages of $1,000 or more in any calendar quarter of 2024 or 2025 to household employees.View on the source
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Pay FUTA tax. • The tax is 6% of cash wages. • Wages over $7,000 a year per employee aren’t taxed.View on the source
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Withhold 7.65% (6.2% for social security tax and 1.45% for Medicare tax) from each payment of social security and Medicare wages.View on the source
In 2025, a family paid babysitter Ana $2,000 in cash wages and housekeeper Ben $2,000 in cash wages. Both are adults and neither is the employer's spouse, child, or parent. Are social security and Medicare taxes owed?
One employer stops social security withholding at the wage base. Two employers do not coordinate, so their combined withholding can exceed the single-employer maximum. The remedy is a credit for excess social security withholding on the income-tax return: combined withholding minus the maximum required at the 6.2% rate. Medicare tax has no base, so it never produces this credit. Railroad retirement tier 1 follows the same logic where it applies. If a single employer withheld more than the maximum, that excess is not credited on the return: the employer should adjust it, and if it does not, the worker files a claim for refund on Form 843.
Lee earns $200,000 from Employer A and $100,000 from Employer B, each withholding 6.2%. Employer A stops at the $176,100 base and withholds $10,918.20; Employer B withholds $6,200. Combined withholding is \(10{,}918.20 + 6{,}200 = 17{,}118.20\). The maximum required on the $176,100 base is $10,918.20, so the excess credit is \(17{,}118.20 - 10{,}918.20 = 6{,}200\). Medicare withholding on the full $300,000 produces no excess credit.
Form 1040 Instructions Line 11 — Excess Social Security and Tier 1 RRTA Tax Withheld
If you, or your spouse if filing a joint return, had more than one employer for 2025 and total wages of more than $176,100, too much social security or tier 1 railroad retirement (RRTA) tax may have been withheld. You can take a credit on this line for the amount withheld in excess of $10,918.20.View on the source
Form 1040 Instructions Line 11 — Excess Social Security and Tier 1 RRTA Tax Withheld
But if any one employer withheld more than $10,918.20, you can’t claim the excess on your return. The employer should adjust the tax for you. If the employer doesn’t adjust the overcollection, you can file a claim for refund using Form 843.View on the source
In 2025, an employee earned $130,000 from Employer A and $60,000 from Employer B, with social security tax withheld from each at 6.2%. What amount can the employee claim as a credit for excess social security tax withheld?
When a worker was really an employee but the firm treated the worker as an independent contractor and withheld nothing, the tax is uncollected social security and Medicare tax. The wages still enter income, and Form 8919 computes the worker share; the form applies only to that misclassified worker, and only when one of its listed reason codes fits. A correctly classified employee whose employer under-withheld does not file Form 8919: the employer remains liable and corrects it through its own employment-tax filings. Reported tips with uncollected tax and group-term life insurance are handled the same way: the uncollected tax is shown in box 12 of Form W-2 with codes A and B or M and N and is paid with the return on Schedule 2, line 13. Unreported tip income is the neighboring case on Form 4137; the distinction turns on whether the tips were reported to the employer. Tips of $20 or more in a month that were not reported to the employer are taxed on Form 4137.
Jo performed employee services for $5,000, but the firm treated Jo as an independent contractor and withheld nothing; an IRS determination that Jo was an employee supplies a Form 8919 reason code. The $5,000 enters Form 1040 wage income and Form 8919 computes the 7.65% worker share as uncollected tax. If Jo had instead failed to report cash tips to the employer, the tip amount would go on Form 4137.
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If you performed services, other than as an independent contractor, and your employer didn’t withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040 or 1040-SR.View on the source
Form 1040 Instructions Page 11
d. Social security and Medicare tax on tips you didn’t report to your employer or on wages you received from an employer who didn’t withhold these taxes. e. Uncollected social security and Medicare or RRTA tax on tips you reported to your employer or on group-term life insurance and additional taxes on health savings accounts.View on the source
Form 1040 Instructions Line 13 — Uncollected social security and Medicare or RRTA tax
Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. This tax should be shown in box 12 of Form W-2 with codes A and B or M and N.View on the source
Form 1040 Instructions Line 5 — Unreported Social Security and Medicare Tax From Form 4137
Enter the total of any taxes from Form 4137. If you received tips of $20 or more in any month and you didn’t report the full amount to your employer, you must pay the social security and Medicare or railroad retirement (RRTA) tax on the unreported tips.View on the source
Publication 525 Group-Term Life Insurance
Box 12 will also show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. You must pay these taxes with your income tax return. Include them on Schedule 2 (Form 1040), line 13.View on the source
A restaurant server received $2,400 in cash tips during 2025 and did not report any of them to the employer, so no social security or Medicare tax was withheld on the tips. How are the social security and Medicare taxes on those tips figured?
The course asks you questions like these as you learn, brings back the ones you miss, and ends with full-length practice exams.
See the course Or take the free 12-question checkGroundSkill is independently produced and is not affiliated with or endorsed by the IRS. Sources last checked 2026-09-14. Exam preparation, not tax advice.