ACC 407 Exam 3 2023 LATEST EXAM GRADED A

Why is it important to distinguish whether an individual is an employee or an independent contractor (self-employed)? – ANSWER A. Self-employed individuals receive an income tax deduction equal to 50% of their self-employment tax. Consideration should also be given to the hospital insurance portion of the FICA tax, which continues to apply without limit at a 1.45% rate for both employees and employers and at a 2.9% rate for self-employed individuals. B. It is important to distinguish whether an individual is an employee or an independent contractor (self-employed) because some expenses are only partially deductible by employees or not deductible at all. A self-employed individual who incurs a business-related expenditure may deduct, under Section 162, the expense for determining AGI on Schedule C, Form 1040. C.Employers pay certain payroll taxes on behalf of their employees, whereas, self-employed individuals have to pay both the employer and employee portion of payroll taxes. Therefore, individuals may prefer to be classified as employees because the employee portion of the social security tax rate in 2020 of 7.65% is less than the self-employment tax rate of 15.3%. ACC 407 Exa