Tax_Basics_corrected

Tax_Basics_corrected - Capital Gains Long-term capital...

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Social Security Tax Most citizens in the United States must contribute a portion of their salary, wages, and tips to the social security fund. This tax is called FICA (short for Federal Insurance Contribution Act) and includes social security contributions plus medicare contributions. In 2009, people who were not self-employed were taxed at 7.65% for income up to a certain amount.* For those who were self-employed the rate was 15.30%. (However, part of the self-employed worker’s FICA could be claimed as an adjustment to income when computing federal income taxes). Joe Smith’s contribution to FICA in 2009 would have been 7.65% of his $58,700 salary or $4490.55. His employer would have contributed that same amount for him.
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Unformatted text preview: Capital Gains Long-term capital gains, profit earned on property or stock held for over 12 months, is taxed at different rates than regular income. Overall Tax Rate What percent of the Smith’s income is paid in federal taxes? They paid $2425 in income tax and $4490.55 in FICA tax. Their total income was $60,850. So their overall tax rate is ( 2425 + 4490.55)/ 60,850 • 100 = 11. 36%. *FICA is actually broken into two parts. The social security tax is 6.2% and the Medicare tax is 1.45% (6.2% + 1.45% = 7.65%). Social security tax is paid on income up to $106,800. There is no cap on the Medicare portion of the FICA tax....
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