It will not be subject to the fica tax

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Reference no: EM13138475

For people who own their own company, their FICA tax rate on income up to about $90,000 is 15.3%. That is a lot on top of their other taxes. If they are in a federal 27% rate, and have state and city rate of another 7%, their total rate would be 27 + 7 + 15.3 = 49.3%!! This is for someone only making $90,000, not a rich person. Of course, this is that tax rate only on the upper parts of their income. Their first $25,000 is taxed at a lower rate, etc. But should ANY part of the income of a person making only $90,000 per year be taxed at almost a 50% tax rate?

One way to avoid part of this: Use an S corporation, and don't pay yourself too much. Maybe pay yourself $50,000, and take the other $40,000 as a pass-through profit from your S corp. It will not be subject to the FICA tax, saving 15.3% of the tax rate.

Reference no: EM13138475

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