Chapter 14: Self-Employment Tax and Other Taxes

A quarter of earnings in 2014 is $____.

$1200. If a self-employed individual's earnings are under this amount, they have an option to pay for the full 4 quarters of coverage.

The Shared Responsibility Payment is the lesser of: 1. $___ per individual in a family < 5, or $___ per individual in a family of 5 or more multiplied by the uncovered months. OR 2. The greater of: - flat dollar amount of $__ per adult and $__ per child under 18 0r -1% of excess income amount (AGI - threshold amount)

$204, $207 $95, $47.50 (half)

If a taxpayer's net earnings from self-employment are less than $___, those earnings are not subject to SE tax.

$400. If from more than one source, net income is combined from all to determine if minimum is met.

A farmer may elect to use the optional method to pay for 4 quarters of social security/disability coverage. Farmer may elect to use this method if: 1. gross farm income not more than the specified upper limit of $_____. OR 2. gross farm income is more than the upper limit and net farm profit is less than the "lower limit" divided by .9235 or $____.

$7,200 (lower limit of $4,800 x 150%) $5,198 ($4,800 / 0.9235) 1. can elect to pay SE tax on 2/3 of gross farm income, max of $4,800. 2. can elect to pay SE tax on net earnings equal to the lower limit of $4,800.

What are items that are taxed under NIIT?

-interest -dividends -rents -net capital gains from the disposition of investment property -royalties -annuity distributions -passive activity income (generally, investment type income versus active or material participation income)

List some groups who are exempt from self-employment tax:

-nonresident aliens -aliens who work for international organizations and foreign governments -members of certain religious sects who meet requirements and waive all social security benefits -clergymen and Christian science practitioners who obtain an approved exemption

List the 4 reasons that would NOT result in a premature distribution from both IRAs and Qualified Retirement Plans.

-reaching age 59.5 -permanent disability -death -to eliminate an excess contribution

List some items that are excluded from the computation of self-employment income:

-rents from real estate (unless in that business) -rents from personal property (unless in that business) -interest -dividends on securities -gain or loss on sale of depreciable property or other fixed assets used in business -gain or loss on sale, trade, or involuntary conversion or other disposition of property that is neither stock-in trade nor held primarily for sale to customers -wages received as an employee and covered by SS tax or railroad retirement tax -pensions and retirement income -deductions for personal exemptions -NOLs -any other income, gain, loss, or expense not resulting from the conduct of trade or business.

If funds from a qualified tuition savings plan (Section 529 plan) are not used for qualified education expenses, they are subject to: (2)

-taxable income -10% penalty on Form 5329

The Additional Medicare Tax rate is __% and applies to Medicare wages, Railroad Retirement Tax Act compensation, and self-employment income above the following thresholds: MFJ: MFS: Single, HOH, QW:

0.9% MFJ: $250,000 MFS: $125,000 Single, HOH, QW: $200,000

A premature distribution (IRA, retirement plan) is not only included in gross income, but it is also subject to a __% penalty. Form ____

10%. Form 5329.

Self-employment tax is comprised of two components: a __% rate for ___________ and a __% rate for _____.

12.4% rate for Social Security retirement 2.9% rate for Medicare Total = 15.3%

For taxpayers who purchased a home in 2008 and claimed the First-time Homebuyer Credit on their 2008 tax return, the credit is required to be paid back equally over __ years starting with the ____ tax return

15 years. 2010 return.

What is the penalty for non-qualified HSA distributions?

20% of the portion that is not qualified.

To collect retirement benefits one must have __ quarters of earnings and you accrue a max of __ quarters per year. To collect disability, one must have __ quarters in the last __ years before being disabled.

40 quarters - 4 quarters per year. 20 quarters, last 10 years.

Excess IRA contributions are subject to a __% penalty tax each year that it remains an excess contribution.

6%

A deduction is allowed for the employer's share, __% of SE tax. What is the formula for computing SE tax?

7.65% Net profit subject to tax less: 7.65% = net earnings from self-employment x SE rate of 15.3% = SE tax

Annual minimum distributions from traditional IRAs, Simple IRAs, and SEP IRAs must begin starting the year the taxpayer reaches age __. What is the penalty for failing to withdraw?

70.5 50% of the required minimum distribution that is not withdrawn. (can be satisfied by a qualified charitable distribution)

List the threshold amounts individuals must exceed in AGI to be subject to the NIIT: MFJ, QW w/ child: MFS: Single, HOH: What is the tax rate?

MFJ, QW w/ child: $250,00 MFS: $125,000 Single, HOH: $200,000 3.8%

In general, what is self-employment income?

Net income from a trade, business, or profession operated by a sole proprietor or partnership whether conducted full-time or part-time.

A husband and wife may each have a Schedule SE. This is [always/never] a jointly filed form.

Never. Based on an individual's earnings from self-employment.

The Additional Medicare Tax taxes earnings like wages and net self-employment income, while the Net Investment Income Tax (NIIT) taxes ___________. At what rate?

Non-earned income from investments. 3.8%

What is the purpose of the self-employment tax? Where is it calculated?

Purpose is to provide Social Security and Medicare coverage and benefits for individuals who work for themselves. Paid in place of Social Security tax and Medicare tax (FICA). Calculated on Schedule SE of Form 1040.

You must have earnings subject to _________ in order to contribute to an IRA or there is a penalty tax.

Social Security.

Which portion of SE tax is subject to a maximum earnings base? What is the amount?

The maximum earnings base for the Social Security portion (12.4%) is $117,000. If additional wages are earned from which FICA has been withheld, the max earnings base is reduced by that wage amount prior to calculating the retirement component of SE tax.

Can optional self-employment be claimed in the event of a loss?

Yes.

Additional Medicare Tax: Medicare wages are combined with _________ of both spouses to determine if the threshold is exceeded. A ________ loss is ignored and does not reduce the wages in comparing them to the threshold.

net self-employment income self-employment (Form 8959)