Lexa Worked as an Employee During the First Half of the Year

question 64

Essay

Lexa worked as an employee during the first half of the year earning $65,000 of salary. Lexa's employer withheld $4,030 of Social Security tax and $943 of Medicare tax. In the second half of the year, she was self-employed and she reported $180,000 of self-employment income on her ScheduleC. What amount of self-employment taxes is Lexa required to pay?
$11,549.
$\begin{array}{c}\begin{array}{|l|}\hlineDescription\\\hline\text{(1) Social Security wage base limit less}\\ \text{employee compensation subject to}\\ \text{Social Security tax}\\\hline\text{(2) Net earnings from self-employment}\\\hline\text{(3) Social Security portion of}\\ \text{selfemployment tax}\\\hline\text{(4) Employer pertion of Medicare tax on}\\\text{the self-employment income}\\\hline\text{(5) Sum of taxpayer's compensation and net}\\\text{earnings from self-employment}\\\hline\text{(6) Lesser of [Step (5) amount or \$ 200,000] }\\ \text{x 1.45 \%}\\ \hline\text{(7) Greater of [(a) zero or (b) the amount}\\ \text{from \$ t e p(5) minus \$ 200,000] x 2.35 \%}\\ \hline\text{(8) Steps \( (6)+(7) \) - Medieare taxes}\\ \text{withheld by Lexa's employer. This is the}\\ \text{employee portion of Medicare tax}\\\text{on the self-employment income.}\\\hline\text{(9) Steps (3)+(4)+(8)}\\ \hline\end{array}\begin{array}{l|}\hline\text { Amount } \\\hline\$ 52,000 \\\\\\\hline{166,230}\\\hline{6,448} \\\\\hline2,410 \\\\\hline231,230 \\\\\hline2,900 \\\\\hline734 \\\\\hline2,691 \\\\\\\\\hline11,549 \\\hline\end{array}\begin{array}{l|}\hlineExplanation\\\hline\text{\$ 117,000-\$ 65,000 , Firnited to \$ 0}\\\\\\ \hline \$ 180,000 \times 92.35 \% \\\hline\text{Lesser of [ Step (1) or (2)] x 12.4 \%} \\\\\hlineStep (2) \times 1.45 \% \\\\\hline\$ 65,000+ Step (2) \\\\\hline 200,000 \times 1.45 \% \\\\\hline31,230 \times 2.35 \% \\\\\hline2,900+734-943 \\\\\\\\\hline\\\hline\end{array}\end{array}$

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Definitions:

Raw Material

The basic material from which a product is made, typically processed and used in the manufacturing process.

Materials Price Variance

The difference between the actual cost of raw materials and the expected (standard) cost, used in budgeting and financial analysis to gauge purchasing efficiency.

Direct Materials

Raw materials that are directly used in the manufacturing of a product and are easily traceable to the final product.

Direct Labor Variances

The difference between the budgeted or standard cost of direct labor for actual production and the actual cost incurred for direct labor.