Tax question: recreational vs. professional

[Wake up CALL]

"I believe there still is an annual cap on the amount you pay for social security taxes, but I do not know the rule about who pays them first, YOU or your w2 employer. Good question!"

It doesn't matter who pays them first, if you overpay you file for the refund. After you have paid 6.2% on your first $87,000 of earnings for 2003 ($87,900 in 2004) you have met the cap on the OASDI tax. You will still owe the 1.45% medicare tax (HI) on your earned income no matter how high it goes.

An example: you earned $100,000 in 2003 all earned income. You pay $6655.50 in combined OASDI and HI tax for the first $87,000. on the next $13,000 you will pay $188.50 in HI tax only. This is of course in addition to state and federal income taxes.