Question

Self-employed individuals are generally subject to the self-employment tax and must file a return if their net earnings meet or exceed which of the following amounts?

a) $400
b) $600
c) $800
d) $1,000

Answer 1

Self-employed individuals must file a return if their net earnings are $400 or more. This includes contributions to Social Security and Medicare. The Social Security tax for employees is regressive as it has an income cap.

Step-by-step explanation:

Self-employed individuals are generally subject to the self-employment tax and must file a return if their net earnings meet or exceed $400. This is an important threshold for self-employed individuals who are managing their tax responsibilities. The self-employment tax includes contributions to Social Security and Medicare. For comparison, the Social Security tax for employees is set at 6.2% on income earned below $113,000 and is considered a regressive tax because it caps at a certain income level, thereby placing a greater burden in proportion to income on lower earners.