Question

Eva received $60,000 in compensation payments from JAZZ Corp. during 2019. Eva incurred $5,000 in business expenses relating to her work for JAZZ Corp. JAZZ did not reimburse Eva for any of these expenses. Eva is single and she deducts a standard deduction of $12,200. Based on these facts answer the following questions: Use 2019 Tax Rate Schedule for reference.

Assume that Eva is considered to be a self-employed contractor. What is her self-employment tax liability and additional Medicare tax liability for the year?

Assume that Eva is considered to be a self-employed contractor. What is her regular tax liability for the year?

Answer 1

The self-employment tax rate is 15.3% in 2019. That rate is the sum of a 12.4% Social Security tax and a 2.9% Medicare tax. Self-employment tax applies to net earnings.

• For tax purposes, net earnings usually are your gross income from self-employment minus your business expenses.
• Generally, 92.35% of your net earnings from self-employment is subject to self-employment tax.
• Once you’ve determined how much of your net earnings from self-employment are subject to tax, apply the 15.3% tax rate.

Net Earnings = $.60,000 x 92.35% = $ 55,410

So,

self-employment tax liability = $ 55,410 x 12.4% = $6870.84

and

additional Medicare tax liability for the year  = $ 55,410 x 2.9% = $1606.89

Regular Tax Liability :

  Eva received compensation for the Year = $60,000

Standard deduction = $12,200

Taxable Income for the Year = $47,800

Tax Brackets and Rates, 2019

Rate	For Unmarried Individuals, Taxable Income Over
10	$0
12	$9,700
22	$39,475
24	$84,200
32	$160,725
35	$204,100
37	$510,300

So,

Eva's Regular Tax liability for the Year 2019 = $7,538.50

-	9,700	10	970.00
9,700	39,475	12	4,737.00
39,475	8,325	22	1,831.50
			7,538.50