Question

True/False

1. There is a wage cap on the HI portion but not on the OASDI portion of the self-employment tax.

2.The Additional Medicare Tax applies to both net earnings from self-employment and salary.

3. One-half of the Additional Medicare Tax is deductible for AGI.

4. There is no penalty for underpayment of estimated tax as long as the required annual payment is made by January 15 of the year following the end of the taxpayer's tax year.

5. Gross income is not limited to amounts received in the form of cash but the important question is whether the taxpayer receives an economic benefit.

6. Income from separate property is always considered to be separate income.

Answer 1

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1. There is a wage cap on the HI portion but not on the OASDI portion of the self-employment tax.

False.

The wage cap is decided by Congress. There is a wage cap on the OASDI portion but not on the HI portion of the self-employment tax.

2.The Additional Medicare Tax applies to both net earnings from self-employment and salary.

True.

Rate is 0.9%.

3. One-half of the Additional Medicare Tax is deductible for AGI.

False.

It depends on the taxable income.

4. There is no penalty for underpayment of estimated tax as long as the required annual payment is made by January 15 of the year following the end of the taxpayer's tax year.

False.

Estimated Tax has to be paid quarterly on or before following dates: April 15, June 15, Sept 15 and Jan 15.

5. Gross income is not limited to amounts received in the form of cash but the important question is whether the taxpayer receives an economic benefit.

True.

Gross income is not limited to amounts received in the form of cash. According to Treasury Reg. Section 1.61-1(a), income may be “realized in any form, whether in money, property, or services.” The important question is whether the taxpayer receives an economic benefit. If a taxpayer benefits from an item, it is taxable.

6. Income from separate property is always considered to be separate income.

True.

Separate property means when the marriage ends and the couple physically separates with no intention of being in marriage and eventually ending in divorce. Any earnings or debts arising after separation is considered separate property. Any earning the spouses receive after the divorce is considered separate income and taxed only to the earning individual.