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Year-end tax tip: pay more self-employment tax?

December 15, 2011

Should self-employed taxpayers try to move income up from 2012 to 2011 to pay taxes sooner? That's an intriguing and counterintuitive suggestion from tax blogger William Perez, who explains:

What I have in mind here is the lower self-employment tax rate in 2011 (13.3% instead of the usual 15.3%) and the fact that the income base for the Social Security portion of the self-employment tax will be increasing for 2012 (from $106,800 in 2011 to $110,100 in 2012).

For self-employed persons earning less than the $106,800 max, accelerating income into 2011 saves 2% on the accelerated income compared to waiting until the tax rate reverts to normal. For self-employed persons earning over the $106,800 max, shifting income to this year not only saves the 2% from the rate reduction but shifts income out of next year when the max is higher.

As Mr. Perez notes, this only works if you have combined wages and self-employed income under $106,800. It also provides no benefit if Congress extends the 2% tax break into 2012, as both parties claim to desire (Kay Bell has an update on this political scrum). But even if they actually accomplish this, you only pay the tax a year sooner. For a 2% permanent benefit, it might well be worth the risk of paying a little sooner.

Check back for more 2011 year-end tax tips through December 31!

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