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 will need to determine her total tax liability for the year and then divide it by four.
1. Calculate Juanita's income tax:
Juanita's estimated annual earnings are $73,040. She expects to pay 27% of this amount in income tax.
Income tax = $73,040 * 27% = $19,726.80
2. Calculate Juanita's self-employment tax (Social Security and Medicare):
Social Security tax is 12.4% of wages up to $106,800. Since Juanita's earnings are below this threshold, she will pay the full 12.4%.
Social Security tax = $73,040 * 12.4% = $9,049.60
Medicare tax is 2.9% of all wages.
Medicare tax = $73,040 * 2.9% = $2,116.36
3. Calculate Juanita's total tax liability:
Total tax liability = Income tax + Self-employment tax
Total tax liability = $19,726.80 + $9,049.60 + $2,116.36 = $30,892.76
4. Determine the quarterly estimated tax payment:
Since quarterly payments are made over four quarters, divide the total tax liability by four.
Quarterly estimated tax payment = Total tax liability / 4
Quarterly estimated tax payment = $30,892.76 / 4 = $7,723.19
Therefore, Juanita's quarterly estimated tax payment for the third quarter will be $7,723.19.