Question

Example 3-5 George Talbot receives wages amounting to $106,700. His net earnings from self-employment amount to $28,600. Talbot must count $26,200 of his earnings in determining taxable self-employment income for OASDI taxes. OASDI Taxable Wage Base Wages Received OASDI Taxable Self-Employment Income $132,900 $106,700 $26,200 Ralph Henwood was paid a salary of $77,800 during 20-- by Odesto Company. In addition, during the year Henwood started his own business as a public accountant and reported a net business income of $66,000 on his income tax return for 20 - Compute the following: a. The amount of FICA taxes that was withheld from his earnings during 20-- by Odesto Company. OASDI HI b. Henwood's self-employment taxes on the income derived from the public accounting business for 20- OASDI HI

Answer 1

Solution:

A) FICA Tax withheld by employer

OASDI = (77,800*6.2%) = $4,823.60

HI = (77,800*1.45%) = $1,128.10

B)

1. Limit on Social Security wage base = 132,900

2. Employee compensation = 77,800

3. Balance limit for self employment tax purpose (132,900 - 77,800) = 55,100

4. Self employment income = 66,000

5. Net Earning from self employment percentage (100% - 7.65%) = 92.35%

6. Net Earning from self employment (66000*92.35%) = 60,951

7. Social security portion of self employement tax (OASDI) = (less of 3. Or 6.) = 55,100 * 12.4% = 6,832.40

8. Medicare portion of self-employment Total Self employment taxes (HI) = 55,100 * 2.9% = 1,597.90