Question

Eva received $63,000 in compensation payments from JAZZ Corp. during 2018. Eva incurred $11,000 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 $12,000. Based on these facts answer the following questions:

A. Assume that Eva is considered to be an employee. What amount of FICA taxes is she required to pay for the year? (Round your final answer to the nearest whole dollar amount.)

B. Assume that Eva is considered to be an employee. What is her regular income tax liability for the year? (Round your final answer to 2 decimal places.)

C. 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? (Round your intermediate computations & final answer to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

Answer 1

Answer:

A. Because Eva’s salary is below the Social Security wage base limit, she pays FICA taxes of 7.65% on her entire $60,000

Tax liability= $60,000 × 7.65% = $4,590

Hence, Eva is required to pay $4,590 for the year.

B. The computation of Eva's regular income tax liability is as follows:

Description	Amount	Explanation
(1) Salary	$60,000
(2) Standard deduction	(12,000)	Itemized deductions less than standard deduction.
(4) Taxable income	$48,000	(1) + (2)
Regular tax liability	$8,181.25	(48,000 – 34,000) × 25% + 4,681.25 [see tax rate schedule for Single individuals]

Hence, Eva's regular income tax liability is $8,181.25.

C. The computation of Eva's self-employment tax liability and Medicare tax liability is as follows:

Description	Amount	Explanation
(1) Gross self-employment compensation	$60,000
(2) Business expenses	(11,000)
(3) Net self-employment (Schedule C) income	$49,000	(1) + (2)
(4) Percentage of self employment income subject to self-employment tax	92.35%
(5) Earnings from self-employment	$45,252	(3) × (4)
(6) Self employment tax rate	15.3%	Eva’s income is below the Social Security tax compensation limit for 2010 so entire earnings are subject to 15.3% rate.
(7) Self-employment tax liability	$6,924	(5) × (6)
(8) Medicare tax rate	2.9%
(9) Medicare tax liability	$1,312	(5) × (8)

Hence, Eva's self emplyment tax liability is $6,924 and Medicare tax liability is $1,312.