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Jane T (LLC)
Jane T (LLC), Former straight A Student - Now Mom
Category: Homework
Satisfied Customers: 8435
Experience:  Degrees in Eng., econ; JD (law), MBA, former valedictorian & winner of academic scholarship
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Taxpayer operated as a SP providing only notary services ...

Customer Question

Taxpayer operated as a SP providing only notary services which are exempt from SS & Medicare taxes. Taxpayer incorporated as of 1.1.08. Still provides the same services and will be the only employee of the corporation. Is the taxpayer's W2 wages exempt from the SS & Med taxes as in the SP scenario, or not?
Submitted: 8 years ago.
Category: Homework
Expert:  The Professor replied 8 years ago.
W-2 wages - for whatever work is performed - are not exempt from SS and Med taxes. As a SP the payments received are exempt by statute. A good reason for this person not to incorporate!
The Professor, Taught at USC Years Ago
Category: Homework
Satisfied Customers: 1387
Experience: Engineering Degree, Tutoring Experience, USC Faculty (Retired)
The Professor and 2 other Homework Specialists are ready to help you
Customer: replied 8 years ago.
Where can I find this statute or code?
Expert:  The Professor replied 8 years ago.
Sorry for the delay. I will have to be away for a while. I will Opt Out so that someone else can help you with a pertinent reference.
Expert:  Jane T (LLC) replied 8 years ago.

DearCustomer

To the question of "Is the taxpayer's W2 wages exempt from the SS & Med taxes as in the SP scenario, or not?"

The answer is "NO." W2 wages earned from a corporation as an employee, even one you own, are not exempt from SS or Medicare taxes. ALSO, please be aware that self-employed owners of an SP DO pay SS or Medicare taxes IF they make more than $400 - see this from the IRS (section 4.3): http://www.irs.gov/faqs/faq-kw208.html

Jane T (LLC), Former straight A Student - Now Mom
Category: Homework
Satisfied Customers: 8435
Experience: Degrees in Eng., econ; JD (law), MBA, former valedictorian & winner of academic scholarship
Jane T (LLC) and 2 other Homework Specialists are ready to help you
Customer: replied 8 years ago.
Your answer is not correct. See Schedule SE Form 1040 instructions. Under Income & Losses not included in Net Earnings from Self-Employment, Item #2.

You have been helpful.
Thanks, Chris
Expert:  Jane T (LLC) replied 8 years ago.

DearCustomer

I am sorry, but you are incorrect and my answer is correct based on the instructions found at http://www.irs.gov/pub/irs-pdf/i1040sse.pdf

First, it repeats what I said about:

  • self-employed owners of an SP DO pay SS or Medicare taxes only IF they make more than $400
  • Also, it says that a person's income earned as an employee does pay SS or Medicare taxes, whichi is what I said

You may not be reading the instructions you indicated properly because they use the word "business." However, under IRS and legal dictionaries, a business is NOT a corporation and if you will note the instructions only talk about business and partnership income which, under legal definition are NOT corporations they are no different than SPs. Both the instructions you indicate and my answer are the same.

Customer: replied 8 years ago.
You are not taking into consideration the unique feature of this taxpayer in that they only provide notary services. Again, see the aforementioned IRS Pub. reference.
Thanks, Chris
Expert:  Jane T (LLC) replied 8 years ago.
THIS ANSWER IS LOCKED!

You need to spend $3 to view this post. Add Funds to your account and buy credits.
Customer: replied 8 years ago.
Fair! Good job!