Each year, you only pay social security taxes up to a certain limit. You also pay Medicare taxes on all your earnings each year. There is no Medicare limit.

For 2007, once your combined social security wages and net self-employment earnings exceed $97,500, your self-employment tax rate decreases from 15.3% to 2.9%. However, only the income that exceeds the threshold of $97,500 (in 2007) will be taxed at 2.9%.

Let's say you earn $77,500 as an employee, and earn another $50k in net self-employment income. In this case, you will pay self-employment taxes of 15.3% on the first $20k of moonlighting income (since this brings you to $97,500), and then the remaining $30k will be subject to self-employment taxes of just 2.9%.

If you're married, you do NOT include your spouse's earnings in these calculations. For social security taxes and self-employment tax purposes, each spouse is treated separately.

Zip Code: 01801