Adam Fleeman, a skilled carpenter, started a home improvement business with Tom

Question

Adam Fleeman, a skilled carpenter, started a home improvement business with Tom Collins, a master plumber. Adam and Tom are concerned about the payroll taxes they will have to pay. Assume they form an S corporation and each earns a salary of $102,000 from the corporation; in addition, they expect their share of business profits to be $78,250 each.

How much Social Security tax and Medicare tax (or self-employment tax) will Adam, Tom, and their corporation have to pay on their salary and profits?

FICA Tax Adam Tom S corporation

Explanation / Answer

Each employee will have to have pay $7,803 ($102,000 x 7.65%) in FICA (Social Security and Medicare) employment taxes. The S corporation would also have to pay $7,803 of FICA taxes ($102,000 x 7.65%) on behalf of each employee ($15,606 total). Neither Adam nor Tom is required to pay FICA taxes on his share of the business profits (assuming they are paying themselves reasonable salaries).

FICA Tax Adam $102,000 x 7.65% = $7,803 Tom $102,000 x 7.65% = $7,803 S corporation $102,000 x 2 x 7.65% = $15,606

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