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Ask Jonathan Tierney Your Own Question
Jonathan Tierney
Jonathan Tierney, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 322
Experience:  Tax Accountant at Praxair, Inc.
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I am currently semi-retired and receiving Social Security. I

Customer Question

I am currently semi-retired and receiving Social Security. I have been asked to do some consulting work and paid as a 1099 employee. How will this effect my taxes for 2015?
Submitted: 1 year ago.
Category: Tax
Expert:  Jonathan Tierney replied 1 year ago.

Contractors receiving a 1099-MISC are expected to report these earnings on a Schedule C and you would be subject to self-employment taxes, which is 15.3%, half of which is deductible for income tax purposes. In addition, you can claim deduction for any expenses you incurred while performing your consulting work, perhaps even for a home office. There is no withholdiing on 1099 income unless you do not furnish a Social Security or employer identification number. You will instead be expected to make estimated tax payment or, alternately increase withholding on other income like Social Security benefits.

In order to avoid an estimated tax penalty, you will need to have paid in 100% of your last year's taxes or 90% of your current years taxes in four equal quarterly installments or through withholding. If you expect most of your income to come in later in the year, you an annualize your income so your quarterly required payments can vary based upon when you received your income. However, as long have made payments based upon last year's tax, you can wait to pay any balance due April 15, 2016 without any estimated tax penalty.

I do not know how much your 1099 income will be or anything else about your tax return, so I can't know exactly how it will affect your taxes (in terms of numbers). As an additional service I can put together a projection of your 2015 tax based upon the year-to-date income, deductions, and payment as well as last year's tax.

Finally, as long as you have reached full retirement age, self-employment income will not reduce your Social Security benefits at all.

I hope this answers your question. Please let me know if I can clarify anything or answer any additional questions. Thanks, Jonathan

Customer: replied 1 year ago.
I am 65. I am not planning on making more than $15,000 over and above what I get from Social Security which is $1187.00 a month. Are you saying that I have to send monies to IRS 4 times a year totaling 15.3% of what I am paid? How does being an independent contractor benefit me instead of actually being employed?
Expert:  Jonathan Tierney replied 1 year ago.

The 15.3% self-employment tax is based upon the FICA and Medicare taxes that total 7.65% for the employer and employee. Since they have no employer, self-employed person are expected to pay both the employer and employee person. Being self-employed has the advantage of being allowed to claim business deductions without any limitations that an employee has. Employee that pays business expenses personally must report them as miscellaneous itemized deductions, which are only allowable if they exceed 2% of itemized deduction and only if the taxpayer chooses to itemize their deductions. Most consultants are better off as employees rather than independent contractors given their limited expenses and the employer's payment of half the payroll tax.

In addition, since there is no withholding on their income, self-employed persons are expected to make estimated tax payments. The 15.3% rate is based upon 92.35% of self-employment income so the rate nets to approximately 14.2% of net self-employment earnings.

I realize this is not the answer you were hoping for, but this is what Congress has determined must be paid.

I hope this answers your question. Let me know if you need to know anything else. Thanks, Jonathan