Question

Eva received $60,000 in compensation payments from JAZZ Corp. during 2019. Eva incurred $5,000 in business...

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?

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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
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