Does the employer social security tax also apply on self-employment income for individuals with W2 income that exceeds the IRS maximum?

Question

I have a question very similar to W2 and 1099 (self employed) income in same year: social security taxable income limit?, but goes a step further.

The goal of my question is to estimate how much social security tax would be taken out from a side-hustle while earning income from a W2 that is in excess of the IRS Maximum Taxable Earnings.

Question: If an employee receives both a W2 income in excess of the IRS maximum taxable earnings, and they are also self-employed on the side, would the employer portions of self-employed social security tax still apply on the self-employment income?

For example, imagine someone works a W2 job and makes $200,000 (in excess of the social security limit). Their employer would withhold 6.2% (up to the same maximum?).

If the same someone also is self-employed and makes $10,000 through some side gig. This income would also be subject social security tax of 12.4% -- 6.2% for the employee and 6.2% as the employer.

The employees gross wages in this example, as I understand it, is $210,000 (since the income is "pass-through"). This means that up to the IRS limit (e.g. $147,000 in 2022) the 6.2% tax would be applied.

However I'm not as clear on how the employer portion works. For the self-employment portion of the income $10,000, would that also be subject to the additional 6.2% from the "employer" portion of the self-employment income?

Meaning in total with this hypothetical, the total social security taxes owed would be:

• Employee social security: $147,000 & 6.2% = $9,114
• Employer social security: $10,000 & 6.2% = $620
• Total: $9,114 + $620 = $9,734

Is this correct? Or am I missing something?

Following up on that, does the employer portion of social security also follow the same maximums? (E.g. assume $200,000 in W2 income but now $150,000 in self-employment income).

In this new example, would the employer social security portion only apply to the first $147,000 (2022 IRS limit) of the $150,000 in self-employment profit?

Answer 1

If your W2 wages subject to social security taxes exceed the maximum taxable earnings ($147000 for 2022), you do not need to pay the Social Security component of the self-employment tax, only the Medicare.

From the IRS (numbers updated to 2020):

If your wages and tips are subject to either social security tax or the Tier 1 part of railroad retirement tax, or both, and total at least $137,700, do not pay the 12.4% social security part of the SE tax on any of your net earnings. However, you must pay the 2.9% Medicare part of the SE tax on all your net earnings.

Answer 2

The sum of the Social Security taxes paid from W-2 wages and the Social Security taxes paid for self employment (both the employee and employer parts) will not exceed the maximum amount.

For example, look at the 2021 Form 1040 Schedule SE. The maximum taxable earnings ($142,800 for 2021) is on line 7. On line 9, you decrease line 7 by the amount of your Social Security wage compensation; this serves as the maximum taxable earnings for Social Security. On line 10, you multiply the lesser of line 6 (92.35% of your income) and line 9 (the limit decreased by Social Security wages) by 12.4%, and this is the Social Security part of your Self-Employment Tax. Notice that 12.4% is both the employer and employee portions (each of which is 6.2%). You can see that if your W-2 Social Security wages reaches the maximum taxable earnings, lines 9 and 10 will be 0 (and in fact, on line 8a, it says if your wages exceeds $142800, to skip lines 8b through 10, implying that the Social Security part of Self-Employment tax is 0). The Medicare part of Self-Employment Tax (line 11) is unaffected by the limit.