Self-Employed Multiplier of 0.9235 for Social Security, Medicare
If you are self-employed, only 92.35% of your earnings are subject to Social Security and Medicare taxes. So if you report $100,000 in income, you will only pay FICA (Federal Insurance Contributions Act) tax on $92,350 of it. This is referred to as the “self-employed multiplier of .9235.”
The reason for the multiplier has to do with being self-employed. Because employers pay FICA and Medicare tax for each employee equal to 7.65% of the employee’s salary, that 7.65% is subtracted from your income to calculate your FICA and Medicare tax amount (100% – 7.65% = 92.35%). The idea is that 92.35% would have been your income if you were an employee since your employer would have spent the other 7.65% on the tax. You may never notice this unless you carefully compare the earnings records you receive from the Social Security Administration (SSA) against your tax returns. There you will notice that for any years you were self-employed, your SSA earnings are less than the income you reported to the Internal Revenue Service (IRS). This is the self-employed modifier in action.
Of course, we always recommend you consult a tax professional for specific tax advice.