Question

Kyle, a single taxpayer, worked as a free-lance software engineer for the first three months of 2018. During that time, he earned $60,000 of self-employment income. On April 1, 2018, Kyle took a job as a full-time software engineer with one of his former clients, Hoogle Inc. From April through the end of the year, Kyle earned $202,000 in salary. What amount of FICA taxes (self-employment and employment related) does Kyle owe for the year? (Round your intermediate calculations to the nearest whole dollar amount.)

Answer 1

The FICA(For federal Insurance Contributions Act) Taxes are the Contributions to Social Security and Medicare as a percentage of earnings:

1.Social Security : It is 6.2 percent on first $1,28,400 of wages for the year 2018.

2.Medicare : 1.45 percent on all your wages.

1.Kyle,being an employee needs to pay only half of the tax amount as a withholding tax from his pay check.

Social Security : $15922 (6.2 percent on first $1,28,400 of wages)

Medicare : $5858 (1.45 percent on all his total wages)

Total: $21780

Kyle's half : $10,890/ only. The other $10,890/ - will be paid by his employer ,Hoogle Inc.

2. Kyle, as a Self employed , need not pay FICA on 100 percent, but only on 92.35 percent of it ( 100- 7.65- which is the contribution his employer would have paid , if kyle would have had an emplolyer, which he dont.)

Social Security : $ 6,871 (92.35  percent on $60,000 *12.4 percent )

Medicare : $1607 (92.35  percent on $60000* 2.9 percent)

Total :$8478/-

Klye,as a self employed needs to pay entire amount of $8478 as a self employment tax  and can claim a tax deduction on half amount i.e $4239/- in the tax return.