Answer the following statements true (T) or false (F)

Question

1. If an individual is an employee and also has self-employment income, the maximum tax base for computing self-employment tax is reduced by the wages that are subject to the FICA tax.
2. A self-employed individual has earnings from his business of $300,000 in 2018. For the earnings in excess of $128,400, he will only have to pay the 2.9% Medicare Tax.
3. When a husband and wife file a joint return and both have self-employment income, the self-employment tax must be computed separately.
4. Nonrefundable credits may offset tax liability but may not result in additional payments to the taxpayer.
5. The child and dependent care credit is partially refundable.

Answer 1

1. TRUE
Explanation: The Social Security maximum wage base will apply to the total of an individual's wages and self-employment income.
2. FALSE
Because his earned income exceeds $200,000 ($250,000 if married filing a joint return), earned income in excess of the threshold will also be subject to the .9% Additional Medicare Tax.
3. TRUE
Self-employment tax, just like FICA, is determined on an individual, not joint, basis.
4. TRUE
Nonrefundable tax credits can only offset tax liability.
5. FALSE
The child and dependent care credit is nonrefundable. It is the child tax credit that is partially refundable.