Why don't “normal” tax credits apply towards self-employment tax?

2018-01-20 18:00:21

This is a USA tax question.

Preparing my taxes (regular form 1040), I noticed that the "Other Taxes" section comes after the "Tax and Credit" section. I have some "wages, salaries, tips" income, some self-employment income and some tax credits I am able to take. The relative numbers of these are such that my tax on my "normal" income (written in line 47 of the form) is less than the maximum tax credits I can access on lines 48-54, so my "normal" income tax burden is zero with some "wasted" credits that then apparently can't be applied toward my self-employment tax (line 57).

I'm wondering, why is that? (If such an answer can even be found.) Why would some tax credits not be applicable to self-employment tax?

Self-employment tax is actually a completely separate tax from income tax. It is only included on the income tax form for convenience.

Self-employment tax is the same as Social Security and Medicare withholdings on W2 income (commonly called FICA or

  • Self-employment tax is actually a completely separate tax from income tax. It is only included on the income tax form for convenience.

    2018-01-20 18:53:26
  • Self-employment tax is the same as Social Security and Medicare withholdings on W2 income (commonly called FICA or payroll taxes), with W2 income employers pay half and you pay half. For those who are their own employers they bundled the full amount of Social Security and Medicare together as self-employment tax when SECA was passed years after FICA was passed. Neither get refunded unless an error was made and too much was withheld.

    Why are these treated differently than income tax? FICA stands for Federal Insurance Contributions Act and SECA stands for Self Employed Contributions Act. Contribution may sound like their way of avoiding calling it a tax, but it does denote some difference from other taxes. You could think of it like a tax that's also an insurance premium. Taking it near the top ensures contribution/participation from almost all earners (there are groups exempted, but typically not paying means not benefiting as well).

    2018-01-20 20:00:53