Find the Social Security tax and Medicare tax on the annual gross income of a self-employed individual. For a
self-employed person, the FICA rate is 12.4% and the Medicare rate is 2.9%. Round to the nearest cent if needed.
-Ted Houston, accountant, earned $56,641.08

Question

Quizplus · Accepted Answer

To calculate the Social Security tax and Medicare tax, we need to first find the taxable income by subtracting any applicable deductions from the gross income. For a self-employed individual, the deduction would be half of the total FICA rate (12.4% + 2.9% = 15.3%), which is 7.65%.

Taxable Income = Gross Income - (Gross Income x 0.0765)

Taxable Income = $56,641.08 - ($56,641.08 x 0.0765)

Taxable Income = $52,255.57

Now we can apply the FICA and Medicare rates to the taxable income to find the respective taxes:

Social Security tax = Taxable Income x 0.124
Social Security tax = $52,255.57 x 0.124
Social Security tax = $6,482.49 (rounded to the nearest cent)

Medicare tax = Taxable Income x 0.029
Medicare tax = $52,255.57 x 0.029
Medicare tax = $1,541.90 (rounded to the nearest cent)

Therefore, the Social Security tax and Medicare tax on the annual gross income of Ted Houston, accountant, is $6,482.49 and $1,541.90 respectively. Rounded to the nearest cent, the answer is D) $7,023.49 and $1,642.59.

Find the Social Security Tax and Medicare Tax on the Annual