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CoastMath charges the employee share of Social Security and Medicare tax on wages and both shares on self-employment earnings. It adds the 0.9% Additional Medicare Tax once household earnings pass your filing status’s threshold. Each person has their own Social Security wage base, shared between their jobs and their business. Every year it also works out the alternative minimum tax and adds any amount by which it exceeds your regular federal tax.
Payroll tax is part of total taxes. It is listed as Payroll tax in Tax toolsAnnual tax breakdown, and any minimum tax is inside Federal ordinary tax (including any AMT adjustment).
Self-employment income is entered as net business profit. CoastMath applies the ordinary method: 92.35% of profit is self-employment earnings, and nothing is due if earnings are under $400. Earnings pay 12.4% for Social Security, up to whatever of the wage base that person’s wages haven’t used, and 2.9% for Medicare with no limit. Self-employment earnings count toward the Additional Medicare Tax threshold along with wages.
Self-employment tax=12.4% × min(Earnings, Wage base − Wages)+2.9% × Earnings
Half of the Social Security and Medicare portions is deducted in arriving at adjusted gross income. The Additional Medicare Tax is not part of that deduction.
| Net profit | $100,000 | |
|---|---|---|
| × | Earnings share | 92.35% |
| = | Self-employment earnings | $92,350 |
| → | Social Security, 12.4% | $11,451.40 |
| + | Medicare, 2.9% | $2,678.15 |
| = | Self-employment tax | $14,129.55 |
| → | Deductible half | $7,064.78 |
| Self-employment earnings, 92.35% × $60,000 | $55,410 | |
|---|---|---|
| Wage base left after wages$184,500 − $150,000 | $34,500 | |
| → | Social Security, 12.4% × $34,500 | $4,278 |
| + | Medicare, 2.9% × $55,410 | $1,606.89 |
| + | Additional Medicare, 0.9% × $5,410Wages and earnings together pass $200,000 | $48.69 |
Wages also owe $9,300 of Social Security tax and $2,175 of Medicare tax; the year’s payroll tax is $17,408.58.
Business expenses, retirement plans and the qualified business income deduction are covered in Self-employment income.
CoastMath recomputes each year’s income under the minimum tax rules. Starting from regular taxable income, it adds back deductions the minimum tax disallows: the standard deduction, or capped state and local taxes if you itemize, plus the senior deduction. Mortgage interest and charitable gifts stay deducted. An exemption comes off, which phases out by 50 cents for each dollar above the start. The rest is taxed at 26%, then 28%. Qualified dividends and long-term gains keep their 0, 15 and 20 percent rates. If the result exceeds your regular income tax plus capital gains tax, the difference is added to federal tax.
- Exemption
- $90,100
- $140,200 joint, $70,100 married filing separately
- Exemption phase-out starts
- $500,000
- Single or separate; $1,000,000 joint
- 28% rate starts
- $244,500
- $122,250 married filing separately
These amounts grow with your plan’s inflation assumption in later years. A year with a large gain can trigger it: the gain lifts minimum tax income past the phase-out start and removes most of the exemption.
| Regular taxable income$200,000 ordinary after the standard deduction, plus the gain | $600,000 | |
|---|---|---|
| + | Standard deduction added back | $16,100 |
| = | Minimum tax income | $616,100 |
| − | Exemption after phase-out$90,100 − 50% × ($616,100 − $500,000) | $32,050 |
| = | Minimum tax base | $584,050 |
| → | 26% on the $184,050 that isn’t gain | $47,853 |
| + | Gain at capital gains rates | $62,725 |
| = | Tentative minimum tax | $110,578 |
| − | Regular income tax and capital gains tax$40,598 + $62,725 | $103,323 |
| = | Minimum tax added | $7,255 |
For how these taxes fit into the full return, see How CoastMath calculates income tax.
Social Security and Medicare tax on wages
Wages here are gross pay. Pre-tax 401(k) deferrals lower income tax but not payroll tax. HSA contributions made through a cafeteria plan lower both (see Health savings accounts). Employer contributions are not wages. The employer’s matching share of payroll tax isn’t part of your taxes.
The Social Security base applies to each person across all of their wages, so a second job doesn’t add a second base. The Additional Medicare Tax threshold applies to the whole return. On a joint return it uses both spouses’ earnings together, even when neither alone passes $200,000.
Single, $230,000 of wages
Joint, $180,000 and $120,000 of wages
In later years the wage base grows with your plan’s inflation assumption. The Additional Medicare Tax thresholds are fixed in the law and stay put.