Question

Marc Batchelor, a self-employed sales consultant, has estimated annual earnings of $303,000 this year. His social security tax rate is 12.4% up to the wage base, Medicare is 2.9%, and his federal income tax rate is 24%.

How much estimated tax (in $) must Marc send to the IRS each quarter?

Answer 1

Information provided is that Marc Batchelor, a self-employed sales consultant, has estimated annual earnings of $303,000 this year. His social security tax rate is 12.4% up to the wage base, Medicare is 2.9%, and his federal income tax rate is 24%.

A)Self Employed person's social security tax,medicare & income tax that he need to pay is calculated using the below formulas:

i) Social Security Taxes = Annual Salary or Earnings* Social Security Tax Rate

ii) Medicare = Annual Salary or Earnings * Medicare Tax Rate

iii) Income Tax = Annual Salary or Earnings * Income Tax Rate

Therefore,

i) Social Security Taxes = $303000*12.4%=$37572

ii) Medicare = $303000*2.9%=$8787

iii) Income Tax = $303000*24%=$72720

B) Quarterly estimated tax is calculated as follows:

Quarterly estimated tax = (Social Security Tax+Medicare+Income Tax)/4

Therefore ,

Quarterly estimated tax = ($37572+$8787+$72720)/4=$29769.50

So Marc must send $29769.50 i.e. $29770 to the IRS each quarter.