Taxation Demystified: Navigating Personal Taxes with Stephan Cont.

FICA taxes (Federal Insurance Contributions Act of 1935) are automatically deducted from most job wages. However, if you work a freelance job, oftentimes taxes are not deducted and it is up to the person filing to pay all required taxes.

Now that you have figured out how much of Stephan’s FICA taxes went toward Medicare, let’s take a comprehensive look at his total tax liability. This will include both his federal income tax and the FICA taxes on his freelance income.

With an understanding of Stephan’s total tax liability for the year, let’s turn our attention towards strategies that can potentially reduce his tax burden. One such strategy could be increasing his tax-deferred retirement deposits.

Great work today! In this activity, you’ve walked in Stephan’s shoes, navigating through his income sources, deductions, credits, and tax responsibilities. The steps you followed and the calculations you performed are reflective of the real-world procedures used to calculate federal income tax and FICA taxes. These fundamental principles and calculations are not only crucial for financial literacy, but they also empower individuals like Stephan to make informed decisions about their personal finance management.