Juanita is the self-employed owner of Juanita's Linens. Her estimated annual earnings are $73,040 and she expects to pay 27% of this amount in income tax. What will be her quarterly estimated tax payment for the third quarter? (For self-employed persons, social security tax is 12.4% of wages up to $106,800, and Medicare tax is 2.9% of all wages.)
To calculate Juanita's quarterly estimated tax payment for the third quarter, we first need to determine her income tax amount for the year.
Step 1: Calculate the income tax amount:
Juanita's estimated annual earnings are $73,040. She expects to pay 27% of this amount in income tax:
Income tax = $73,040 * 0.27 = $19,721.60
Step 2: Calculate the social security and Medicare tax amounts:
- Social security tax is 12.4% of wages up to $106,800. Since Juanita's earnings are below this threshold, we need to calculate her social security tax:
Social security tax = $73,040 * 0.124 = $9,067.36
- Medicare tax is 2.9% of all wages:
Medicare tax = $73,040 * 0.029 = $2,118.16
Step 3: Calculate the total annual tax:
Total tax = Income tax + Social security tax + Medicare tax
Total tax = $19,721.60 + $9,067.36 + $2,118.16 = $30,907.12
Step 4: Calculate the quarterly estimated tax payment:
Since we need to calculate the payment for the third quarter, we divide the total tax by 4:
Quarterly estimated tax payment = Total tax / 4
Quarterly estimated tax payment = $30,907.12 / 4 = $7,726.78
Therefore, Juanita's quarterly estimated tax payment for the third quarter will be $7,726.78.