Final answer:
Joe will owe $22,057.20 in self-employment tax for 2022, which includes Social Security tax on the first $142,800 of his income and Medicare tax on the entire $150,000 income.
Step-by-step explanation:
Joe, a self-employed individual who earns $150,000 in self-employment income, would owe self-employment tax for 2022 which consists of both Social Security and Medicare taxes. Typically, an employer and employee would each pay half of these taxes, but since Joe is self-employed, he must pay both portions. The Social Security tax rate is 12.4% on the first $142,800 of income in 2022 and the Medicare tax rate is 2.9% on the entire income. However, Joe's income exceeds the Social Security tax cap; thus, he will only pay the Social Security tax on the initial $142,800. The calculation for Joe's self-employment tax would be 12.4% of $142,800 (Social Security) plus 2.9% of $150,000 (Medicare).
The calculation is as follows:
Social Security Tax: $142,800 x 0.124 = $17,707.20
Medicare Tax: $150,000 x 0.029 = $4,350
Therefore, Joe would owe a total of $22,057.20 in self-employment tax for the year 2022.