Question

Use the following tax rates, ceiling and maximum taxes: employee and employer oasdi: 6.20% $147,000 $9,114.00 employee* and employer hi: 1.45% no limit no maximum self-employed oasdi: 12.4% $147,000 $18,228.00 self-employed hi: 2.9% no limit no maximum *employee hi: plus an additional 0.9% on wages over $200,000. also applicable to self-employed. rounding rules: unless instructed otherwise compute hourly rate and overtime rates as follows: carry the hourly rate and the overtime rate to 3 decimal places and then round off to 2 decimal places (round the hourly rate to 2 decimal places before multiplying by one and one-half to determine the overtime rate). if the third decimal place is 5 or more, round to the next higher cent. if the third decimal place is less than 5, drop the third decimal place. also, use the minimum hourly wage of $7.25 in solving these problems and all that follow. ralston is the sole proprietor of cut

A) $9,114.00
B) $11,160.00
C) $9,927.60
D) $10,620.00

Answer 1

A self-employed individual pays 12.4% in Social Security taxes up to $147,000 and 2.9% in Medicare taxes with no income limit. They also face an additional 0.9% Medicare tax on income over $200,000. The 6.2% Social Security tax on employees' income below a threshold is a regressive tax because it disproportionately impacts lower-income workers.

Step-by-step explanation:

When an individual is self-employed and the business is not incorporated, they are responsible for paying both the employer's and the employee's portions of Social Security and Medicare taxes. This is often known as the self-employment tax. Specifically, a self-employed individual will pay 12.4% for Old-Age, Survivors, and Disability Insurance (OASDI) on the first $147,000 of their income, which is capped at $18,228.00. Additionally, they will pay a 2.9% Medicare Hospital Insurance (HI) tax on all of their income, without any limit. For income above $200,000, there is an additional 0.9% for the employee's Medicare tax.

The social security tax of 6.2% on employees' income earned below a certain threshold is generally considered a regressive tax because it caps out at a certain income level, meaning high-income earners pay a smaller percentage of their total income compared to low-income workers who pay the percentage on all of their earnings. For 2023, this ceiling is $147,000, and the maximum tax is $9,114.00 for employees.