Question

Kyle, a single taxpayer, worked as a free-lance software engineer for the first three months of 2018. During that time, he earned $44,000 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 $178,000 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.)

Explanation

$11,888 of FICA taxes. When a taxpayer has both salary and self-employment income during a year, the wages are applied first in determining the amount of FICA/Self-employment taxes payable for the year. This is true even when the self-employment income is earned before the wages, as is the case in Kyle's situation. This ordering is beneficial to Kyle.

	Description		Amount	Explanation
(1)	Social Security tax paid as an employee [lesser of [(a) $178,000 wages or (b) $128,400 maximum base] × 6.2%	$	7,961	$128,400 × 6.2%
(2)	Social Security wage base limit less employee compensation subject to Social Security tax	$	0	$128,400 − $128,400, limited to $0
(3)	Net earnings from self-employment		40,634	$44,000 × 92.35%
(4)	Social Security portion of self-employment tax		0	Lesser of [Step (2) or (3)] × 12.4%
(5)	Employer portion of Medicare tax for self employment tax purposes		589	Step (3) × 1.45%
(6)	Sum of taxpayer’s compensation and net earnings from self-employment		218,634	$178,000 + Step (3)
(7)	Employee portion of Medicare tax		3,170	(6) × 1.45%
(8)	Additional Medicare tax		168	($218,634 − $200,000) × 0.9%
(9)	Employee portion of Medicare tax		3,338	(7) + (8)
	Total FICA taxes owed for year Steps (1) + (4) + (5) + (9)	$	11,888	$7,961 + $0 + $589 + $3,338

Please explain every step thoroughly and reasoning.

Answer 1

	Description	Amount	Remarks
1	Social Security tax paid as an employee [lesser of [(a) $178,000 wages or (b)$128,400 maximum base] × 6.2%	$      7,960.80	128400*6.2%
2	Social Security wage base limit less employee compensation subject to Social Security tax	$                   -	$128,400 − $128,400, limited to $0
3	Net earnings from self-employment	$    40,634.00	$44,000*92.35%
4	Social Security portion of self-employment tax	$                   -	Lesser of [Step (2) or (3)] × 12.4%
5	Employer portion of Medicare tax for self employment tax purposes	$          589.19	Step (3) × 1.45%
6	Sum of taxpayer’s compensation and netearnings from self-employment	$ 218,634.00	$178,000 + Step (3)
7	Lesser of [Step (6) amount or $200,000] ×1.45%	$      2,900.00	200,000 × 1.45%
8	Greater of [(a) zero or (b) the amount from Step (6) minus $200,000] × 2.35%.	$          437.90	(218634-200,000)*2.35%
9	Employee portion of Medicare tax	$      3,337.90	Step (7) +Step (8)
10	Total FICA taxes owed for year	$    11,887.89	Steps (1) + (4) + (5) + (9)