Self-employment tax when W-2 Earnings exceed max Soc Security wages - possible incorrect calculation

[Krishnapriya1]

This year, I maxed out social security wages.  TT Home and business recognized that and took only medicare taxes from my side hustle.  However, it took less than what it should.  Because social security maxed out on the W-2, it should calculate Medicare tax on .9855 of the self employment income.  But TT calculated it on .9235 of the self employment income. This would mean underpayment of Medicare taxes.  Can a tax specialist take a look at what I am saying?  Thanks in advance.

[DavidD66]

You can file your tax return with confidence that TurboTax has properly calculated your Medicare tax.  If you were to incur and have to pay an IRS or state penalty, or interest because of a TurboTax calculation error, we'll pay you the penalty and interest.  For more information on the TurboTax Accurate Calculation Guarantee, see What is the TurboTax 100% Accurate Calculation Guarantee?  

[dmertz]

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it should calculate Medicare tax on .9855 of the self employment income.  But TT calculated it on .9235 of the self employment income.

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TurboTax's calculation is correct.  The Medicare tax is properly calculated on 92.35% of net profit whether or not you've maxed out the Social Security wage base.  It's never calculated on 98.55% of net profit.  See the calculation on Schedule SE.

[VolvoGirl]

For some reason you are subtracting 1.45% from your Net Profit to give you that 98.55%.  I guess you are subtracting either the Employer 1.45 or the Employee 1.45 part. No it doesn't work that way.

It's hard to explain but the IRS only figures the self employment tax on 92.35% of your Net Profit.  The Medicare part is 2.9% (both er & ee parts) of all wages & on 92.35% of schedule C profit - no max.

[Krishnapriya1]

My w-2 social security wages > 138000.  My self employment income is 3209.  TT gave me $43 credit for self employment taxes and added $86 for other taxes.  I thought I would have to pay $92 and get credit of $46.  I will take your word for it.  I am not a TAX specialist but do understand accounting and am good at math.

That is why I posted the question.  Thanks for responding.

[VolvoGirl]

What is in W2 box 3?  The max is 137,700.

Yes you numbers are right.  Your Net Profit is 3,209.

3,209 x .9235 = 2,963.51

2,963.51 x .029 (Medicare %) = $86 self employment tax

 But also you get to deduct $43 (1/2 SE tax) from your total income for your regular income tax.  You pay both SE tax and income tax on your Net Profit.

[VolvoGirl · Accepted solution]

Follow the math on Schedule self employment especially line 4a where you multiply your Profit by 92.35%.

https://www.irs.gov/pub/irs-pdf/f1040sse.pdf

[Krishnapriya1]

Thanks!