Final answer:
Ralston's self-employment taxes on net earnings of $79,700 include Social Security tax at 12.4%, totaling $9,882.80, and Medicare tax at 2.9%, totaling $2,311.30.
Step-by-step explanation:
Ralston, as a sole proprietor, is subject to self-employment taxes, which include the Old Age, Survivors, and Disability Insurance (OASDI) - commonly known as Social Security tax - and Hospital Insurance (HI), also known as Medicare tax. For self-employed individuals, these rates are double what an employee would pay, as they must cover both the employer and employee portions.
To calculate Ralston's self-employment taxes, we use the sum of 12.4% for Social Security on earnings up to the threshold (which is not applicable here as Ralston's net earnings are below the $113,000 threshold), and 2.9% for Medicare on all net earnings.
Calculation:
- Social Security tax = 12.4% of $79,700 = $9,882.80
- Medicare tax = 2.9% of $79,700 = $2,311.30
The total self-employment tax Ralston would owe is the sum of these two amounts.
Total Social Security tax: $9,882.80
Total Medicare tax: $2,311.30