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Research report

Costly Error in Payroll Tax Computation for the Self-Employed

James R. Nunns
July 1, 2014
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Abstract

Errors in the formulas for computing payroll tax for the self-employed result in their paying less payroll taxes than workers with the same earnings. All self-employed workers benefit from these errors, but those with high earnings benefit disproportionately. A provision in Ways and Means Committee chair Dave Camps tax reform proposal would correct the formulas. The $5 billion revenue gain over ten years from enacting this provision could help pay for extending expiring tax provisions or for better targeted tax cuts. And it would eliminate a glaring inequity. This article explains the correct formulas and the effects of applying them.

Research Area

Individual Taxes Tax administration (individual)
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Meet the Experts

  • James R. Nunns
    Urban Institute Associate
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