For the 2009 tax year, you only pay social security tax
on the first $106,800 of your taxable earnings. So since your regular W-2
job already exceeds that amount, you will not owe any SS tax on your self employment income
However, there is no cap on Medicare
taxes. Medicare is taxed at 2.9% of your total taxable earnings for the year, regardless of the amount. On your W-2 job, your employer pays 1.45% of that tax and the other 1.45% is withheld from your check. On your earnings from self employment, you will be responsible for the full amount of 2.9% since you are basically both the employer and the employee.
When you fill out Schedule SE, you will fill out Section B which is the long schedule, and this will allow you to exclude any SS tax due on the self employment earnings, as you will indicate on that schedule that you already paid the maximum tax on your regular job.
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Thank you ralph.