Lexa, a single taxpayer, worked as an employee during the first half of the year, earning $65,000 of salary. Lexa's employer withheld $4,030 of Social Security tax, $943 of Medicare tax, and $0 of additional Medicare tax. In the second half of the year, she was self-employed and she reported $180,000 of self-employment income on her Schedule C. What amount of self-employment taxes and additional Medicare tax is Lexa required to pay on her self-employment income (each component rounded to the nearest dollar)?
What will be an ideal response?
$13,522, consisting of $13,241 of self-employment taxes and $281 of additional Medicare tax.
Answer computed as follows:
| Description | Amount | Explanation | ||
| (1) | Social Security wage base limit less employee compensation subject to Social Security tax | $ | 67,900 | $132,900 ? $65,000, limited to $0 |
| (2) | Net earnings from self-employment | 166,230 | $180,000 × 92.35% | |
| (3) | Social Security portion of self-employment tax | 8,420 | Lesser of [Step (1) or (2)] × 12.4%, rounded | |
| (4) | Medicare tax on the self-employment income | 4,821 | Step (2) × 2.9% | |
| (5) | Sum of taxpayer's compensation and net earnings from self-employment | 231,230 | $65,000 + Step (2) | |
| (6) | Greater of [(a) zero or (b) the amount from Step (5) minus $200,000] × 0.9%. | 281 | 31,230 × 0.9% | |
| (7) | Step (6) - additional Medicare taxes withheld by Lexa's employer. This is the net additional Medicare tax. | 281 | 281 - 0 | |
| (8) | Steps (3) + (4) + (7) | 13,522 | $13,241 of self-employment tax, Steps (3) + (4); $281 of additional Medicare tax, Step (7) | |
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