Final answer:
The correct statements are that the AMT applies to individual taxpayers and C corporations and that the individual AMT rates are 26% and 28%. S corporations do not have an AMT rate because they are pass-through entities. An individual who owns and is the sole employee of a corporation pays corporate income tax, individual income tax on their salary, and payroll taxes. Therefore, the correct option is A.
Step-by-step explanation:
The correct statement among those given is that the Alternative Minimum Tax (AMT) applies to both the individual taxpayer and C corporations, and that the individual AMT rates are 26% and 28%. The statement about S corporations having an AMT rate is incorrect because S corporations are pass-through entities, which means they don’t pay income tax at the corporate level; instead, income is passed to shareholders and taxed at the individual level. Therefore, the correct answer is D, only statements A and B are correct.
As for an individual who owns a corporation and is the only employee, they would have to pay several types of federal tax, including:
- Corporate income tax on the corporation's profits.
- Individual income tax on their salary taken from the corporation.
- Payroll taxes, which includes Social Security and Medicare taxes, taken out of the wages they pay themselves.
Moreover, the social security tax is considered regressive as it is a flat percentage up to an income cap, meaning it takes a smaller percentage of income from high earners than from low earners.