Question

Calculate the total Social Security and Medicare tax burden on a sole proprietorship earning 2022 profit of $300,000, assuming a single sole proprietor with no other earned income. Note: Round your intermediate calculations to the nearest whole dollar amount.

Total tax ______

Answer 1

The total Social Security and Medicare tax burden on a sole proprietorship with a 2022 profit of $300,000 would be $45,900, calculated by adding both the employer's and employee's shares of the Social Security tax (12.4%) and the Medicare tax (2.9%) for the entire income.

Step-by-step explanation:

To calculate the total Social Security and Medicare tax burden on a sole proprietorship earning a 2022 profit of $300,000, one must take into account that self-employed individuals pay both the employer and employee portions of these taxes.

As of the year 2022, the Social Security tax rate for self-employed individuals is 12.4% up to the wage limit (not provided in the current question, hence we'll use the rate for the entire income), and the Medicare tax rate is 2.9% with no wage ceiling.

Therefore, the total Social Security tax would be 12.4% of $300,000, which amounts to $37,200. The total Medicare tax would be 2.9% of $300,000, amounting to $8,700. Combining both gives us a total tax burden of $45,900.

Answer 2

To calculate the total Social Security and Medicare tax burden on a sole proprietorship earning $300,000 profit, add the Social Security tax, Medicare tax, and federal and state taxes. The total tax burden is $59,475.

Step-by-step explanation:

To calculate the total Social Security and Medicare tax burden on a sole proprietorship with a profit of $300,000, we need to consider the deductions and tax rates for each tax.

Social Security tax is imposed at a rate of 12.4% on income up to a certain wage limit, which was $137,700 in 2020. Since the profit is below this wage limit, the Social Security tax will be 12.4% of the profit.

Medicare tax is fixed at a rate of 2.9%, with no upper ceiling. Therefore, the Medicare tax will be 2.9% of the profit.

For federal and state taxes, assuming a 15% tax rate on the gross annual income, we calculate the tax burden as 15% of the profit.

To calculate the total tax burden, we add the Social Security tax, Medicare tax, and federal and state taxes:

Total tax = Social Security tax + Medicare tax + Federal and State taxes.

Plugging in the numbers, we get:

Total tax = 300,000 * (12.4% + 2.9% + 15%) = $59,475.