Contractors vs Employees
True or False: Contractors do not pay income tax. They pay self-employment tax instead. EXPLAIN YOUR ANSWER.
False, contractors pay self-employment tax in addition to income taxes.
In general who can claim the Qualified Business Income Deduction?
A taxpayer that owns a business/is self-employed
This can reduce your tax liability dollar-for-dollar and anything exceeding what you owe will be refunded to you.
Refundable Tax Credit
This credit is typically claimed for children under 17.
Child Tax Credit/Additional Child Tax Credit
Calculate the payroll taxes (Social Security and Medicare only) that an employee pays on $20,000 of Wage Income.
$1,530
This is the percentage used to calculate the Qualified Business Income Deduction.
20%
A taxpayer has a tax liability of $4,000. They have had $1,000 withheld from their paycheck and have a nonrefundable tax credit of $2,000. How much will they receive as a refund or owe?
$1,000 owed
This credit is typically claimed each year for a student earning their undergraduate degree.
American Opportunity Tax Credit
Calculate the self-employment tax a contractor will pay on $20,000 of net self-employment income.
$2826
Calculate the Qualified Business Income Deduction for a taxpayer whose is single and only income is $49,000 of self-employment income.
$5,888
A taxpayer has a tax liability of $2,500. They have had $1,000 withheld from their paycheck and have a refundable credit of $1,500 and a nonrefundable credit of $3,000. How much will they receive as a refund?
$2,500
This credit of $500 is nonrefundable and can potentially be claimed for a child 17 and older, an elderly parent, or someone who lives with you that has little to no income.
Other Dependent Credit
Why are self-employment taxes seemingly higher than payroll taxes?
Self-Employment taxes seem higher than an employee's payroll taxes since they are paying BOTH portions of Social Security and Medicare, whereas an employee only pays their portion. Their employer pays the other half.
Calculate the taxable income for a taxpayer whose is single and only income is $57,000 of self-employment income.
$29,498
A taxpayer has a tax liability of $4,000. They have had $2,000 withheld from their paycheck and have two children under 17 they will claim as dependents. How much will they receive as a refund?
$2,400
This credit is refundable and the amount of the credit depends on your income level and number of children you are claiming as dependents.
Earned Income Credit
Calculate the Adjustment that a taxpayer will receive from self-employment income of $25,000.
$1,766
Calculate the tax for a taxpayer whose is single and only income is $73,000 of self-employment income.
$4,719
A taxpayer has a tax liability of $1,000. They have had $2,000 withheld from their paycheck and have three children over 17 they will claim as dependents. How much will they receive as a refund?
$2,000
What are the two ways for someone to qualify as a dependent?
Qualifying Child and Qualifying Relative