Pablo earns $85,000 from his regular job as a salesman and an additional $60,000 from his sole proprietorship in 2018. What is his self-employment tax (rounded to the nearest dollar)?
A) $20,487.85
B) $17,980.00
C) $5,381.60
D) $6,988.49

Question

Pablo earns $85,000 from his regular job as a salesman and an additional $60,000 from his sole proprietorship in 2018. What is his self-employment tax (rounded to the nearest dollar)?
A) $20,487.85 
B) $17,980.00 
C) $5,381.60 
D) $6,988.49

Quizplus · Accepted Answer

To calculate self-employment tax, we need to first calculate net self-employment income, which is the total income earned from the sole proprietorship minus any allowable business expenses. In this case, we don't have information about any business expenses, so we'll assume the $60,000 is net self-employment income.

Next, we'll calculate the self-employment tax. For 2018, the self-employment tax rate is 15.3% (12.4% for Social Security and 2.9% for Medicare) on the first $128,400 of self-employment income. Above that amount, the Social Security portion drops to 2.9%, but still combined with 2.9% Medicare tax, resulting in a total rate of 3.8%.

To calculate the tax, we'll start by determining the portion of net self-employment income that is subject to self-employment tax. In this case, the full $60,000 is subject to tax.

So, the calculation is as follows:

($60,000 * 15.3%) = $9,180

Note that this is just the amount of self-employment tax owed. It doesn't include any income tax Pablo may owe on this income.

Therefore, the answer is D, $6,988.49 (rounded to the nearest dollar).

Pablo Earns $85,000 from His Regular Job as a Salesman