DEFINITION of 'Self Employed Contributions Act Tax - SECA Tax'
A form of taxes that self-employed business owners must pay based on their net earnings from self-employment. Self Employed Contributions Act Tax (SECA Tax) was first imposed by the SEC Act of 1954.
Similar to the Federal Insurance Contributions Act Tax (FICA Tax) that employees pay, the payments fund Social Security, Old Age Survivors and Disability Insurance (OASDI) and Medicare programs.
BREAKING DOWN 'Self Employed Contributions Act Tax - SECA Tax'
The basic tax rate for SECA tax payments is twice the percentage rate that employees pay at source from their paychecks. This is to cover both the employer and employee portion of the payment. The employer portion of the payment, is deductible as a business expense.
If your net earnings are less than the minimum set each year, no SECA Tax is payable. If, however, your net earnings are above the minimum, you must pay SECA Tax on the entire amount (including the amount under the minimum).