 Income Tax 2021-2022 Tax Software Example Employment Taxes. Get ready to get refunds to the max diving into Income Tax 2021-2022. Lassert Tax Software. You don't need Tax Software to follow along but you might want the Form 1040 which you can find on the IRS website irs.gov irs.gov. We're starting point single filer Adam Smith living in Beverly Hills 90210. We're starting with the Schedule C type of business flowing then through to line eight other income from Schedule 1. Let's take a look at that flow through. We've got the Schedule C in essence being an income statement. We've got the 120,000 starting point on the income 20,000 of expenses. The net of the 100,000 is what then is flowing through to the Schedule 1. Schedule 1 line three part one then flowing through to the first page of the Form 1040. Form 1040 there's the 100,000 at line eight. We also then have the self employment tax calculated down here in the Schedule SE on the 100,000. This is Social Security and Medicare based on our earnings separate from the payroll taxes. So this is where the distinction that will kind of narrow it down on here a bit will be that 14129 goes back to the 1040 page number two. So this is the other tax as as opposed to the federal income tax. Now we got the Social Security and Medicare. Half of that is deductible so we could take half of that on Schedule 1 as an above the line deduction page number two 7,065 that 7,065 goes back to the Form 1040 and is right here 7,065 getting the adjusted gross income to the 92935. And we've got the standard deduction which is just what it normally is no matter what the income was whether it be W2 or Schedule C12550 single filer. We've got the qualified business income deduction. We're letting the software calculate at this point that gets us to the 64308 on the taxable income and then in page two the tax calculated for the federal income tax using the progressive tax system. The 14129 down here in the other tax to get us to the 2429 the total tax other tax being the self employment tax. Let's go back to the Schedule C and let's imagine that we had employees now. So now we're not just like our own it's not just us that has the net income which is all subject to the kind of the similar thing as payroll taxes which is Social Security and Medicare which we're going to be subject to at the bottom line. But we also have employees that we deal with now employees like anything else that we pay for if it if it wasn't so complicated with all the other regulations it would just be an easy thing. We would just say okay it'd be just like anything else I paid for services. I'm just going to pay somebody and I'm going to have employee expenses. But it gets more complicated than that because of course the employees you have to have withholdings on it you got to do you got to deal with the payroll taxes part of those payroll taxes are Social Security and Medicare taxes. So let's just imagine here that we've got our wages these are going to be the wages that were were paying and we have the related payroll taxes so if I go back on over to my expenses and the data input. I'm going to say OK let's say the wages let's say that someone earns $1000 so we'll just say OK there's $1000 of wages how would I report that and I won't get into this in detail because it's a whole another thing but I just want to distinguish it from like the self employment taxes and how we treat that so if they earned if they earned $10,000 we would have to withhold from them their federal income tax there's Social Security and their Medicare taxes so we would take those things out so they would get something other than $10,000 because we acted as the tax collector and took that money from them. But realize that we're not going to record that generally on on our side in our books in this case as payroll taxes because it's really just wages to them so we're going to put that full 10,000 here in the wages even though that full 10,000 didn't go to them because in theory whatever we withheld from them federal income tax Social Security and Medicare we then paid on their behalf to the government so that means they earned it would be like they earned it and then they paid their taxes we just stepped in and didn't give them the money and paid their taxes and then we have to pay on top of that. Our matching component of the payroll taxes, which we would get to deduct up top so when the taxes here up top I'm going to say this is the payroll taxes, and I'm just going to do a quick calculation for the payroll taxes and say that if they earned 10,000 times the Social Security part which would be 0.062. So this will be Social Security I'm going to say was 620 and then the Medicare if they earned 10,000 times 0.0145 hour employee or portion Medicare it's going to be 145 so this is just a quick example. So that means they would have paid their portion of Social Security and Medicare with which we took from their $10,000 and paid on their behalf but we would deduct them as just part of the wages because in theory we didn't pay that we just are the ones that were facilitating the tax collecting transaction but then we had to pay another 765 were estimated here on payroll taxes which is Social Security and Medicare not based on our wages but based on their wages that's the payroll taxes that we had to pay over and above the $10,000 that we agreed to pay the employee as part of just the cost of doing business. So if I pulled this over to the to the 1040 now you can see now we've got the 10,000 for the wages which is deductible which includes the employee portion of the payroll taxes because they paid it and then we've got the taxes which is including just the payroll taxes at this point in time which includes Social Security and Medicare that we had to pay over and above the taxes that were the employee portion and the wages that we paid to the employee and they are Social Security and Medicare but they're based on the employee wages on their 10,000 that's why their payroll taxes even though they're kind of like going into the same bucket of Social Security and Medicare and then this net income which is now 89,253 that then is kind of like what we are earning and the IRS is still basically seeing us as both the employee and employer on this net income therefore we will be paying Social Security and Medicare as well and that's calculated on the schedule I'm sorry not the schedule SE or it is the schedule SE not the schedule 1040 ES SE so we've got the schedule SE and this is us calculating once again the self-employment tax which is the Social Security and Medicare but it's based on the bottom line of the income statement after having taken the deduction for wages which includes the employee portion of Social Security and Medicare their portion of their Social Security and Medicare and our portion as the employer of their Social Security and Medicare or Social Security and Medicare paid on their earnings this is the Social Security and Medicare paid on our net amount and notice again the amount here is basically twice or the rates are twice what they would be if you see them on a W2 or if you see our employer portion because we are basically being charged the employee and employer portion of that net amount on the schedule SE so that's just just kind of a just to keep those things a little bit distinct because again it gets a little bit confusing when you're talking about Social Security and Medicare and payroll taxes and then kind of the equivalent of like payroll taxes on our side whose income are we calculating the payroll taxes on or Social Security and Medicare on is that the employees or is it in ours and just realized that in practice most people don't really understand the how payroll kind of works so they don't really understand that why we record the gross wages here and how that includes kind of the payroll taxes for the withholdings that we take and why we only break out like the half of the payroll taxes that are the employer portion because the employee portion are already included in here if you understand that you've got a big that could be quite valuable and many and many businesses and tax areas and whatnot that's helpful to know and to explain to people and most people still have a kind of get confused over what's the you know why am I paying Social Security down here when I'm also dealing with Social Security Medicare up here and it's because it's the payroll taxes based on the employees wages versus this the