Self employment tax rates for US and Canadian business owners.

Self Employment Taxes
U.S. 
FICA and Canadian CPP Rates

by L. Kenway BComm CPB

BOOKKEEPER'S HANDY REFERENCE

Self employment taxes need to be on your radar if you are a small business owner in Canada or the U.S.

The best way to pay yourself when you are not an incorporated owner/manager/employee is to take a draw

A best business practice if you want to ensure business success is to make sure you put enough money aside to pay these pesky taxes.

I recommend automatically transferring a minimum of 15% of your net income each month to a separate bank account at a completely different bank with no debit card privileges to take away the temptation to spend the money. If you aren't strong enough to avoid that temptation, then remit the amount each month to CRA as a tax installment. Your total tax bill may not be covered, but it will certainly soften the blow.


Warm up your cup of tea before we begin our chat ...



What is the 2017 FICA tax rate for the self employed individual in the U.S.?

2017 FICA Rate Wage Base Limit Maximum Tax
Social Security12.4%$127,200$15,772.80
Medicare Tier 12.9%$200,000no limit
Medicare Tier 23.8%**over $200,000no limit
Bookkeeper's handy reference - CPP rates for the self employed in the U.S.

If you are self employed, your self employment income is subject to tax on your net income calculated and reported on Schedule C of Form 1040.

The self employment tax is calculated on Schedule SE on Form 1040. This tax is in addition to employment taxes if you have employees.


Beginning in 2014, if your self employment net income is $400 or more, your self employment tax rate (SICA) is 15.3% excluding Medicare on your wage base limit which is $127,200 of net income in 2017 ... and 2.9%** on the remainder, up to thresholds.

You deduct half of your self employment tax on page 1 of your Form 1040.

If your net earnings are less than $400, you have an optional method of reporting your self employment income.

Find historical FICA rates for 2010 - 2016 here.

What is the 2016 CPP contribution rate for a sole proprietor in Canada?

The CPP contribution rate / maximum pensionable earnings are released in November every year for the upcoming year.

CPP Rates 2016 2015 2014 2013 2012 2011
Self Employed Contribution Rate 9.90% 9.90%9.90%9.90%9.90%9.90%
Self Employed Maximum Contribution$5,088.60$4,959.90$4,851.00$4,712.40$4,613.40$4,435.20
Self Employed Maximum Monthly Contribution$424.05$404.25$413.33$392.70$384.45$396.60
Bookkeeper's handy reference - CPP rates for the self employed in Canada

If you are a sole proprietor in Canada, you do NOT need to complete a T4 slip for yourself ... that's because you are taxed on your net profits.

When you file your annual tax return, you will have to pay income tax and CPP premiums (both the employer and employee portions) on your self employment income reported on form T2125.

The CPP contributions owing are calculated when you file your tax return on Schedule 8 CPP Contributions on Self-Employment or Other Earnings. You will receive a tax credit on your income tax return for one half of the CPP contributions.

As of November 2009, a sole proprietor has the option to pay into employment insurance (EI) to receive special benefits ... not regular EI benefits.

At some point, you will be making enough income that CRA will send you a notice informing you that you will have to begin paying tax installments. (They calculate the amount owing for you so you don't have to.)

This requirement kicks in when you expect to owe more than $3,000 in net tax owing in the current year and have paid over $3,000 in net tax owing in either of the past 2 years.

Remember to check with your provincial workers' compensation board to see if you must also pay premiums.


Historical FICA Rates 2010-2016
Good Reference For Backwork

2015 & 2016 FICA Rate Wage Base Limit Maximum Tax
Social Security12.4%$118,500$14,694.00
Medicare Tier 12.9%$200,000no limit
Medicare Tier 23.8%**over $200,000no limit
2014 FICA Rate Wage Base Limit Maximum Tax
Social Security12.4%$117,000$14,508.00
Medicare Tier 12.9%$200,000no limit
Medicare Tier 23.8%**over $200,000no limit

Remember to take note of the following for 2013:

*The U.S. Senate allowed the payroll tax cut to lapse when it passed legislation to avoid the fiscal cliff on January 1, 2013. The bill now goes to Congress. Remember to adjust your 2013 estimated tax payments to account for the 2% increase.

**The taxes were increased to 3.8% in 2013 and expanded to cover wage income and investment income for high income individuals ... defined as $200,000 for single filers and $250,000 for joint filers. Employers are responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.

2013 FICA Rate Wage Base Limit Maximum Tax
Social Security12.4%*$113,700$14,098.80
Medicare Tier 12.9%**$200,000no limit
Medicare Tier 23.8%**over $200,000no limit

There were some payroll tax breaks in 2011 and 2012. I'm including these in case you are doing back work and need to remember the sequence of events.

For 2012, your self employment tax rate (SICA) is 13.3% of your first $110,100 of net income ... and 2.9% on the remainder.

2012 rates on your self employment income reflect the Temporary Payroll Tax Cut Continuation Act of 2011 announced December 23, 2011 in IR-2011-124 and the Middle Class Tax Relief and Job Creation Act of 2012 announced February 23, 2012 in IR-2012-27.

2012 FICA Rate Wage Base Limit Maximum Tax
Social Security10.4$110,100$11,450.40
Medicare2.9%unlimitedno limit

For 2011, your self employment tax rate (SICA) has been reduced to 13.3% of your first $106,800 of net income ... and 2.9% on the remainder.

2011 FICA Rate Wage Base Limit Maximum Tax
Social Security10.4%$106,800$11,107.20
Medicare2.9%unlimitedno limit

If your self employment net income is $400 or more, your self employment tax rate (SICA) for 2010 is 15.3% of your first $106,800 of net income ... and 2.9% on the remainder.

2010 FICA Rate Wage Base Limit Maximum Tax
Social Security12.4%$106,800$13,243.20
Medicare2.9%unlimitedno limit





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