Laurie is self-employed and expects to make $96,000 in 2007. Her social security tax rate
is 12.4% up to the wage base, Medicare is 2.9%, and her estimated federal income tax
rate is 25%. What is Laurie’s expected tax payment for the fourth quarter?
A. $6,000.00 C. $8,667.60
B. $7,971.60 D. $9,672.00
C
To calculate Laurie's expected tax payment for the fourth quarter, we need to determine the amounts for social security tax, Medicare tax, and federal income tax, and then add them together.
1. Social Security Tax: The social security tax rate is 12.4% up to the wage base. For 2007, the social security wage base is $97,500. Since Laurie expects to make $96,000, the social security tax will be calculated on the entire amount. Therefore, the social security tax is 12.4% of $96,000.
Social security tax = 0.124 * $96,000
2. Medicare Tax: The Medicare tax rate is 2.9% applied to the entire income. So, the Medicare tax for Laurie will be 2.9% of $96,000.
Medicare tax = 0.029 * $96,000
3. Federal Income Tax: Laurie's estimated federal income tax rate is 25% of her income. Therefore, the federal income tax for Laurie will be 25% of $96,000.
Federal income tax = 0.25 * $96,000
Now, we can calculate the expected tax payment for the fourth quarter by adding up the social security tax, Medicare tax, and federal income tax.
Expected tax payment for the fourth quarter = Social security tax + Medicare tax + Federal income tax
Plugging in the values:
Expected tax payment for the fourth quarter = (0.124 * $96,000) + (0.029 * $96,000) + (0.25 * $96,000)
Calculating this expression will give us the answer.
Expected tax payment for the fourth quarter = $8,667.60
Therefore, the correct answer is option C: $8,667.60.