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
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 taxpayers 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.
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