...when you do the math for self-employment rather than having the math done for you by payroll, then you realize the actual tax burden is much higher than you thought.
Indeed. I chuckle a bit at all the threads where people claim that their taxes are so low in the US and post their supposed total effective rate, while ignoring FICA, including the employer contribution, and also ignoring other hidden payroll taxes such as unemployment insurance. The US system is very clever in hiding so many of the taxes that people pay.
By the way, to be ridiculously technical about it, self-employment income is not subject to FICA tax. The
Federal Insurance Contributions Act ("FICA") is codified at chapter 21 of subtitle C ("employment taxes") of the
Internal Revenue Code (26 USC §§ 3101-3128) and it imposes two separate taxes: (1) an
income tax on the wage income of employees (subchapter A of FICA), and (2) an
excise tax imposed on employers for the privilege of being able to employ people, which just so happens to be equal to a percentage of the wages that the employer pays to his employees (subchapter B of FICA). Neither tax in FICA applies to self-employment.
However, chapter 2 of subtitle A ("income taxes") of the
Internal Revenue Code, which is titled "Tax on Self-Employment Income" (26 USC §§ 1401-1403), imposes a tax on self-employment income of individuals which just so happens to be the the same rate as the two taxes imposed under FICA combined, although it is not part of FICA. To provide relief from double taxation when the Social Security maximum would otherwise be exceeded, 26 USC § 1402(b) provides that the self-employment income to which the Social Security portion of the tax applies is capped at the difference between the Social Security maximum and the amount of "wages" the individual earned during the year (i.e. outside of self-employment).
Aside from being located in difference places in the
Internal Revenue Code, FICA and self-employment tax are different in a variety of subtle ways.