Question

Alice is single and self-employed in 2019. Her net business profit on her Schedule C for the year is $150,000. What is her self-employment tax liability and additional Medicare tax liability for 2019?

Answer 1

Answer:

$19,790

Explanation:

A taxpayer’s tax base for computing a self-employed taxpayer’s self-employment tax (i.e., net earnings from self-employment) is the taxpayer’s net business profit from Schedule C multiplied by 92.35%.

So, Alice’s net earnings from self-employment is her net profit from Schedule C of $150,000 x 92.35% = $138,525.

Alice will owe $15,773 ($127,200 maximum amount x 12.4%) in Social Security taxes and $4,017 ($138,525 x 2.9%) for the Medicare component of FICA taxes.

Alice owes total self-employment tax of $19,790 ($15,773 + $4,017).

She is not subject to additional Medicare tax because her net earnings from self-employment do not exceed $200,000.

Answer 2

Answer: Her total tax liability is $19,790.23

Explanation:

In calculating Alice's self employment tax liability and medicare tax liability, her net business profit from Schedule C is multiplied by 92.35%.

$150,000 x 92.35% = $138,525.

Being that the maximum taxable amount is $127,200, Alice will owe $127,200 x 12.4% = $15,772.80 in Social Security taxes and

$4,017.23 ($138,525 x 2.9%) for the Medicare component of FICA taxes.

Therefore, the total self-employment tax is $19,790.03 ($15,772.80+ $4,017.23).