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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22831
Experience:  Taxes, Immigration, Labor Relations
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i made 21k from a w2 and 9,300 from a 1099 misc last year.

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i made 21k from a w2 and 9,300 from a 1099 misc last year. i paid no taxes on the 9,300. when doing my taxes after my w2 is entered i am due a refund of 400 then after 8,600 after expenses from my 1099 is entered it says i owe 1,600 federal and 400 illinois state. so basically i supposedly owe 2,400 out of 8,600. i should be in the 15% tax bracket which would have me owing about half that. is this correct?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to our site!
The issue is that compensation reported on 1099MISC form is classified as your self-employment income. Self-employment income is subject of income taxes (federal and state) based on your tax bracket AND additional self-employment taxes 15.6%.
When you receive wages reportable on W2 form - employment taxes are paid partially by your employer and partially by you as withheld from wages every paycheck. When you are self-employed - there is no withholding - and as a self-employed person - you are the only responsible for self-employment taxes which are equivalent of employment taxes.

Lev :

That is explanation of your situation. What to do now? As a self-employed - you are considered as running your own business - and you ate taxed not on the gross income - but on your net income after all allowable deductions.
You may deduct all relevant business costs - for instance the cost of your tools, special clothes, etc. Such deductions will help you to reduce your net business income - and both - your income tax liability and self-employment tax liability will be reduced.

Lev :

Your activity is treated as having your own business - you may report all business income and expenses -on the schedule C -http://www.irs.gov/pub/irs-pdf/f1040sc.pdf


The net income (after deductions)will be reported on the form 1040 line 12 - http://www.irs.gov/pub/irs-pdf/f1040.pdf


If the business has net income over $400, it may be required to file Schedule SE, Self-Employment Tax and net income is likely self-employment income and 15.3% self-employment tax would be required.
Self-employment taxes from schedule SE will go to the form 1040 line 56 - http://www.irs.gov/pub/irs-pdf/f1040.pdf
Also - you will deduct half of self-employment taxes on the line 27.
Generally - that all you needs for income tax purposes . Please review all possible deductions - that might help to reduce income tax liability.

Expert:  Lev replied 1 year ago.
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Expert:  Lev replied 1 year ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and posting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

The issue is that compensation reported on 1099MISC form is classified as your self-employment income. Self-employment income is subject of income taxes (federal and state) based on your tax bracket AND additional self-employment taxes 15.6%.
When you receive wages reportable on W2 form - employment taxes are paid partially by your employer and partially by you as withheld from wages every paycheck. When you are self-employed - there is no withholding - and as a self-employed person - you are the only responsible for self-employment taxes which are equivalent of employment taxes.
That is explanation of your situation. What to do now? As a self-employed - you are considered as running your own business - and you ate taxed not on the gross income - but on your net income after all allowable deductions.
You may deduct all relevant business costs - for instance the cost of your tools, special clothes, etc. Such deductions will help you to reduce your net business income - and both - your income tax liability and self-employment tax liability will be reduced.
Your activity is treated as having your own business - you may report all business income and expenses -on the schedule C -http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
The net income (after deductions)will be reported on the form 1040 line 12 - http://www.irs.gov/pub/irs-pdf/f1040.pdf
If the business has net income over $400, it may be required to file Schedule SE, Self-Employment Tax and net income is likely self-employment income and 15.3% self-employment tax would be required.
Self-employment taxes from schedule SE will go to the form 1040 line 56 - http://www.irs.gov/pub/irs-pdf/f1040.pdf
Also - you will deduct half of self-employment taxes on the line 27.
Generally - that all you needs for income tax purposes . Please review all possible deductions - that might help to reduce income tax liability.
Customer: replied 1 year ago.

turbo tax did not ask me to fill out a schedule se. is that only if my employer from 1099 misc paid some sort of taxes on my behalf, which would be stated on my 1099 misc? also line 4 of se says not to fill out this schedule unless you have entered a value for line 2 which is receiving social security of disability. i didn't so they're telling me to not fill out the form, is this correct?

Expert:  Lev replied 1 year ago.
The tax preparation software usually create and prepare schedule SE automatically - so no need to prepare it.
When you enter information from form 1099MISC - with compensation reported in box 7 - that should be treated as self-employment income - and schedule C should be added to your tax return. Z
When you deduct qualified business expenses - please verify your net business income - if that amount is more than $400 - schedule SE should be added automatically - please verify.
If your net business income is less than $400 - there is NO self-employment taxes - and schedule SE is not added.
Customer: replied 1 year ago.

so is line 6 of se where you multiply your income by 53.5% only appilicable if your employer paid taxes on your behalf? and line 2 about only filling out the schedule if you were paid social security or disability, is that relating to entire se form or something else?

Expert:  Lev replied 1 year ago.
When your employer paid wages reportable on W2 form - employment taxes are already withheld - and there is NO self-employment taxes.
Wages are reported directly on form 1040 line 7 and schedule Se is not affected.
Only net income from business as calculated on schedule C is used to calculate self-employment taxes.
If you are using the tax preparation software - like TurboTax - schedule SE is prepared automatically - you just need to verify.
If you want - you may manually prepare schedule SE.
On line 6 - there is a deduction for employer-EQUIVALENT portion of self-employment tax.
That is not amount paid by your employer.
That calculation is not related to social security or disability income.
That is just a way to calculate self-employment tax liability.
Customer: replied 1 year ago.

so basically if i were able to multiply my income by the 57.51% and deduct that from what i owe, that would mean that my employer who gave me the 1099 would have paid taxes for me, and that is what line 6 of se is trying to calculate? and if my employer paid no taxes for me over the year i basically have to pay the 15% PLUS 15.3% self employment tax minus expenses of 1099 misc amount?

Expert:  Lev replied 1 year ago.
First of all - if your compensation is reported on form 1099MISC - you are NOT an employee - you are an independent contractor and you are treated as running your own business.
As such - you are responsible for your taxes - self-employment taxes and income taxes.

However - self-employment taxes are equivalent of employment taxes.
If you were an employee - then employment taxes would be charges - partly paid by the employer and partly withheld from employees.
The total amount of employment taxes and self-employment taxes would be the same - but calculated and paid differently.

If you were an employee - your employer would pay 7.65% employment taxes (social security and Medicare) and another 7.65% would be withheld from your wages.
Because you are NOT an employee - you are responsible for all your tax liability - including 15.3% self-employment taxes.

Income taxes are paid regardless in your are an employee or a self-employed contractor.
Customer: replied 1 year ago.

so owing 15% plus another 15% self employment tax, over 30% total of your 1099 misc income, after expenses, is correct? i had the exact same 1099 from the same company in 2011 and don't remember paying nearly that much.

Expert:  Lev replied 1 year ago.
That is correct.
However - be sure you correctly account for all your deductible expenses.
You are responsible for self-employment taxes and income taxes on your NET self-employment income - after deducting all expenses - not on your gross compensation.

If you provide information from your 2011 tax return - I will be glad to verify.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22831
Experience: Taxes, Immigration, Labor Relations
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