Final answer:
Self-employed individuals must file a tax return if their net earnings are at least $400. They pay self-employment tax, composed of Social Security and Medicare taxes. The social security tax is regressive as higher-income individuals pay a smaller percentage of their income. The correct option is b. $400
Step-by-step explanation:
Self-employed individuals must file a tax return and may be subject to the self-employment tax if their net earnings meet or exceed $400.
When it comes to the types of taxes a self-employed individual would pay if their business is not incorporated, they need to pay both the employer and employee portions of Social Security and Medicare taxes. Collectively, these are known as the self-employment tax.
Specifically, the self-employment tax rate is 15.3% on net earnings, which includes 12.4% for Social Security (up to an income cap that is adjusted annually) and 2.9% for Medicare, with no income cap.
The social security tax of 6.2% on employee income earned below a certain level ($113,000 for the purpose of this example, but the cap is adjusted annually for inflation) is considered a regressive tax because high-income earners pay the tax on a smaller proportion of their total income compared to low-income earners. The correct option is b. $400