Do daytraders who trade full time pay Social Security or Medicare taxes?

Discussion in 'Taxes and Accounting' started by David Donner, Nov 11, 2020.

  1. If they are just trading for themselves, do daytraders who trade full time pay Social Security or Medicare taxes?
  2. speedo


  3. Depends.

    If you trade through a business then pay profits out to yourself as salary, then yes.

    Otherwise, no.

    SS and Medicare taxes are payroll taxes, not paid on capital gains.
    FWBGBS, WS_MJH, johnnyrock and 2 others like this.
  4. I would say unless you set up a corporation to trade in (LLC,S-,C-corp) it will just be unearned income and you don't pay any FICA taxes, at least this is my current understanding after talking with my accountant.

    Furthermore, maybe someone could confirm if this is correct: Basically the more money you could make trading, the smaller incentive there is to set up as a corporation, correct? Basically my understanding of the on financial benefit of setting up as a company is that you could take a deduction for contribution to a retirement account, and the detriment is that you will pay FICA taxes. Because the 1.45% Medicare tax is payed on unlimited income, at some (large) income level, it will cost more than the benefit of the retirement contribution (deduction). Can anyone confirm I am basically understanding this correctly.

    Obviously the cost of 'setting up' and accountant are being ignored here, also I am pretty sure you can still file 475 and take deductions (home office, etc) without needing to be a corp.

    Can anyone confirm my understanding.
    yc47ib likes this.
  5. One thing to consider is that if you retire or become disabled at a time when you have not paid into SS for at least 5 of the prior 10 years, you lose all of your SS.
    yc47ib likes this.
  6. Overnight


  7. I wish it was false, as it applied directly to me. Show me your source.

    SS is like an insurance policy. If you stop paying (don't pay in at least 10 of the last 20 quarters), you lose it...
  8. I don't think that's correct shadetree- pretty sure your SS is calculated over your career of you highest 35 years of paying in with a minimum of 10 years required (without relying on spouse privileges/ special situations). So once you have paid in for 10 years (40 quarters) you will qualified for SS in the future, of course your entitled amount can vary based on your years/time bought in.

    Again, not an accountant, also looking for clarity.
    comagnum likes this.
  9. Overnight


    Your source is your Social Security statement. You know, the one you get each year which shows your benefits?
  10. Overnight


    Ahh, I see, you are confusing SS retirement with disability insurance.
    #10     Nov 11, 2020
    comagnum likes this.