Final answer:
Joe, a self-employed individual, would owe a self-employment tax of $19,044 for both 2015 and 2016, based on a Social Security tax of 12.4% on the first $118,500 of income and a Medicare tax of 2.9% on the entire $150,000 income.
Step-by-step explanation:
The question is about calculating the self-employment tax that an individual, Joe, would owe based on his self-employment income of $150,000. For both the 2015 and 2016 tax years, self-employment tax consists of two parts: Social Security tax and Medicare tax. The Social Security tax rate is 12.4% on income up to a certain threshold, and the Medicare tax rate is 2.9% on all self-employment income.
In 2015 and 2016, the Social Security tax applied only to the first $118,500 of income. Earnings above this amount were not subject to the Social Security tax. Therefore, Joe would owe 12.4% of $118,500 plus 2.9% of his entire $150,000 income for Medicare tax.
Calculations for 2015 and 2016 Self-Employment Tax:
To note, self-employment tax applies to net income after business expenses have been deducted, so the actual taxable self-employment income may be less than the gross income of $150,000, depending on Joe's expenses.