In: Accounting
Alice is single and self-employed in 2018. Her net business
profit on her Schedule C for the year is $190,000.
What is her self-employment tax liability and additional Medicare
tax liability for 2018? (Round your intermediate
calculations to the nearest whole dollar amount. Leave no answer
blank. Enter zero if applicable.)
Self-employment tax liability
Additional medicare tax liability
Ans:
Self-employment tax liability = $21,010
Additional medicare tax liability = $0
Working:
Alice is single and self-employed in 2018.
Self-employment tax is the tax paid to federal government to fund Social Security and Medicare.
Net business profit on her Schedule C for the year is = $190,000
Total income subject to self-employment taxes = $190,000 *92.35% = $175,465
Self-employment(SE) tax consists of 12.4% of Social Security Tax plus 2.9% of Medicare Tax.
12.4% of Social Security Tax is applicable for net income up to $128,400.
2.9% Medicare part of the SE tax on all net earnings
Social Security Tax = $128,400 * 12.4% = $15,921.60
Medicare Tax = $175,465 * 2.9% = $5,088.49
Hence self-employment tax for 2018 = $15,921.60 + $5,088.49= $21,010
For single filers, additional Medicare tax of 0.9 percent kicks in when earned income is over a $200,000.
As such, for Alice:
Additional Medicare tax liability for 2018 = $0