Cheng is an employee of KaTuk Corporation. He also has his own business working as a caterer. For 2016, Cheng's wages from KaTuk were $198,000. His self-employment income was $34,000.
a. Compute the payroll, self-employment, and additional Medicare taxes for Cheng for 2016.
b. Assume the same facts except that Cheng's 2016 self-employment activities resulted in a loss of $9,000. Compute the payroll, self-employment, and additional Medicare taxes for Cheng for 2016.
c. Compute Cheng's NIIT for 2016 using wages of $198,000, self-employment income of $34,000, and NII of $6,000.
Income tax is a type of direct tax which is a major source of revenue for the government. The government imposes the income tax on total income generated by an individual during a financial year.
Answer and Explanation: 1
Total payroll income = Salary income + Income from business
Total payroll income = 198,000 + 34,000
Total payroll income = $232,000
Payroll income = Salary income - Loss
Payroll income = 198,000 - 9,000
Payroll income = $189,000
NIIT = Wages + Self-employment income + NII
NIIT = 198,000 + 34,000 + 6,000
NIIT = $238,000
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fromChapter 3 / Lesson 5
In this lesson, we'll discuss allowable deductions that reduce taxable income. You'll learn about each deduction and its limitations. We'll also explore how to calculate tax liability after subtracting deductions.