Final answer:
It is false that federal self-employment tax and the 10% early distribution penalty from a pension plan are included in the federal tax liability subtraction for Oregon. The self-employment tax covers the combined employee and employer portions of Social Security and Medicare taxes for self-employed individuals. The Social Security tax is regressive due to its income cap affecting low-income earners more.
Step-by-step explanation:
The statement that the federal self-employment tax and the 10% early distribution penalty from a pension plan are included in the federal tax liability subtraction for Oregon is False. In Oregon, as in many states, taxpayers can subtract the federal income tax they paid from their state tax liability; however, this subtraction is limited to specific kinds of taxes and typically does not include self-employment tax or early distribution penalties.
When an individual owns a corporation and is the only employee, they will have to pay regular federal income taxes, as well as both the employer's and the employee's portion of Social Security and Medicare taxes, which are sometimes referred to as payroll taxes.
If someone is self-employed and their business is not incorporated, they will still pay federal income taxes and the combined Social Security and Medicare taxes, known as the self-employment tax, which covers both the employer's and the employee's portions.
The Social Security tax of 6.2% on employees' income earned below $113,000 is considered a regressive tax, as it takes a larger percentage from low-income earners and a smaller percentage from high-income earners due to the income cap.