Question
In: Accounting
Robert earned $20,000 of profit from a sole proprietorship in 2018. If he also has $118400...
Robert earned $20,000 of profit from a sole proprietorship in 2018. If he also has $118400 of salary income, how much self-employment tax will he owe?
A. 1820
B. 1776
C. 536
D. $580
Solutions
Expert Solution
Correct option is "A"- 1820
In case if a person is self employed and is in employment too ,the employment income should be first considered for social security tax limit .
FICA rates are classified in to two categories:
| 2018 | |
| social security tax | 6.2% up to $ 128400 |
| Medicare tax | 1.45% |
In case of self employment ,person has to pay both employer and employee portion .Self employment income subject to social security tax = maximum limit -employment income
= 128400 -118400
= 10000
| Self employment Taxes | |
| social security taxes | 10000*6.2%= 620 employer portion +620 employee portion= 1240 |
| Medicare taxes | 20000*1.45%= 290 employer portion +290 employee portion= 580 |
| Total self employment taxes due | 1820 |
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