Question

Karlie Hastings is a writer (employee) for the Santa Fe Gazette and has an annual salary of $49,000. This year, she also realized net self-employment earnings of $85,000 from a book she wrote. What portion of her self-employment earnings is subject to the two parts of the social security tax

Answer 1

Answer:

$2,46500

Explanation:

Self-employment Earnings are profits made from carrying on a "trade or business" as a sole proprietor, an independent contractor, or some form of partnership. For a trade or business, to be considered self employment, does not have to be profitable, and it shouldn't be a full time thing but profit must be your motive.

To calculate your self employment income Subtract ordinary and necessary trade or business expenses from the gross income you derived from your trade or business.

Note that, the amount subject to self-employment tax is 92.35% of your net earnings.

Remember you pay income tax on your profits only, not your total income. Subtract your business expenses from your total income. This is the amount you will pay income tax on.

For Karlie

HI taxable Self employment earnings = $85,000

HI Self employment tax = ($85,000 × 0.29)

= $24650

Hence the portion of her earnings subjected to two parts of security tax is #2,46500.

Answer 2

Answer:

$92,041.2 is Karlie's gross self employment earning. 7.65% of this amount is subject to the first part of the social security tax while 92.35% of the remaining amount is subject to the second part of the social security tax.

Explanation:

Note that Karlie's self employment earning wasn't given but her NET self employment earning was given and the question is What portion of her self employment earning is subject to the two parts of the social security tax?

We are hence supposed to find her TSEE (Total or Gross Self Employment Earning)

To find this,

We know that her net SEE is $85,000 hence her gross SEE is=

GSEE= NSEE + (7.65% of GSEE)

GSEE = $85,000 + (7.65% of GSEE)

92.35 GSEE = $8,500,000

Hence GSEE= $92,041.2

So, this amount (her GSEE) is subject to the first part of the social security tax - that is the part that  (7.65% of $92,041.2) is paid to Santa Fe Gazette, Karlie's employer or goes to business expenses.

On the other hand, 92.35% of her NSEE (92.35% of $85,000) is subject to the second part of the social security tax.