Question

Pat generated self-employment income in 2015 of $76,000. The self-employment tax is:

a. $0.
b. $5,369.23.
c. $10,738.46.
d. $11,628.00.
e. None of the above.

Answer 1

Self-employed individuals are required to pay self-employment taxes, which include both Social Security and Medicare taxes. The total self-employment tax owed is calculated based on the self-employment income and the applicable tax rates.

Step-by-step explanation:

Self-employed individuals are required to pay self-employment taxes, which include both Social Security and Medicare taxes. The Social Security tax is 12.4% on self-employment income up to a certain limit ($118,500 in 2015), and the Medicare tax is 2.9%. However, since self-employed individuals are both the employer and the employee, they are responsible for paying both the employer and employee portions of these taxes.

In 2015, the self-employment tax rate was 15.3% on net self-employment income up to $118,500 and then 2.9% on the portion of income above that threshold. Therefore, Pat's self-employment tax for 2015 would be calculated as follows:

1. 12.4% x $118,500 = $14,652 (maximum Social Security tax)
2. 2.9% x ($76,000 - $118,500) = -$1,139 (negative value because it exceeds the threshold)
3. Total self-employment tax = $14,652 - $1,139 = $13,513