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In: Accounting

Roger graduated with an accounting degree in December of 2017. He began working for Big Bank...

Roger graduated with an accounting degree in December of 2017. He began working for Big Bank on January 1, 2018. He is classified as an independent contractor. The bank paid him $50,000 for 2018. How much self‐employment tax will Roger pay for 2018 (rounded)?

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Expert Solution

Self employment taxes are comprised of two parts: Social Security and Medicare. You will pay 6.2 percent and your employer will pay Social Security taxes of 6.2 percent on the first $128,400 of your covered wages. You each also pay Medicare taxes of 1.45 percent on all your wages - no limit. If you are self-employed, your Social Security tax rate is 12.4 percent and your Medicare tax is 2.9 percent on those same amounts of earnings but you are able to deduct the employer portion. You will pay an additional 0.9% Medicare tax on the amount that your annual income exceeds $200,000 for single filers, $250,000 for married filing jointly, and $125,000 married filing separate.

Self-Employment Tax Analysis   Social Security Medicare
'Adjusted' earnings $50,000 $50,000
Less: self-employment adjustment $3,825 $3,825
Taxable self-employment earnings $46,175 $46,175
Self-employment tax $5,726 $1,339
Total self-employment tax $7,065
Tax-deductible portion $3,532

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