Instruction 3-1 Use the Following Tax Rates, Ceiling and Maximum Taxes

question 19

Essay

Instruction 3-1
Use the following tax rates, ceiling and maximum taxes:
Employee and Employer OASDI:     6.20%                  $132,900                          $8,239.80
Employee* and Employer HI:           1.45%                  No limit                           No maximum
Self-employed OASDI:                      12.4%                  $132,900                        $16,479.60
Self-employed HI:                                2.9%                    No limit                          No maximum
*Employee HI: Plus an additional 0.9% on wages over $200,000. Also applicable to self-employed.
Rounding Rules: Unless instructed otherwise compute hourly rate and overtime rates as follows:
1. Carry the hourly rate and the overtime rate to 3 decimal places and then round off to 2 decimals places (round the hourly rate to 2 decimal places
    before multiplying by one and one-half to determine the overtime rate).
2. If the third decimal place is 5 or more, round to the next higher cent.
3. If the third decimal place is less than 5, drop the third decimal place.
Also, use the minimum hourly wage of $7.25 in solving these problems and all that follow.
Refer to Instruction 3-1 . Ralston is the sole proprietor of Cut & Curl. During the year, his net earnings were $79,700. What are his self-employment taxes (OASDI and HI) on these earnings?

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