self-employed 6month, tax rate is applying to full year

[NWMary]

Hello,

For the first 6 months of 2021 I was employed by an employer, for the 2nd half I was an independent contractor. Turbo Tax is calculating my tax rate at the independent contractor rate for the full year. It seems to be about $1700 over my  rough calculation. Thoughts?

[ThomasM125]

Your net self-employment income will be added to your wage income and your net taxable income will be taxed at ordinary income tax rates. Your net self-employment income will be taxed at an additional self-employment tax rate of about 15%. 

You can look at your tax form 1040 and see the amount of your self-employment tax on line 4 of schedule 2. You can view your income tax on line 24 of your form 1040. If you use a tax table, you should be able to verify that the tax on line 24 is correct.

You can view your form 1040 while working in the online version of TurboTax by following these steps:

While working on your return in the Federal section of TurboTax:

   1.  Choose the Tax Tools icon on your left menu bar

   2.  Tools

   3.  View Tax Summary

   4.  Choose the Preview my 1040 on your left menu bar

[NWMary]

Hi Thomas,

Thank you for this information. I'm still confused. In the first 6 months of the year, I earned $22K from my employer. My tax burden on line 18 of the 1040 is $988. After adding the $16K I earned in the 2nd half of the year, that number on line 18 jumps to $2846. Add the self-employment tax you referenced from Schedule 2 line 4 ($2354), and my total tax bill comes to $5200, tempered only by a self-employment deduction of $1177. Why is my 1040/Line 18 tax rate taking such a big leap for the half of the year that I spent as an employee?

[RobertB4444]

@NWMary  Because you pay more taxes if you're self employed.  Which you are if you are a contractor.

You made $22K in the first half of the year.  You're paying about 10% tax on that.  You get a $12K standard deduction.  So you paid tax on 10K.  That's that $988 tax bill that you talked about.

Then you added $16K to your income.  You already used your standard deduction.  Regular income tax on that is a little higher because now you've made $38K instead of 22.  So your tax is $2846.

Now comes the self employment tax.  When you work for yourself the amount of money that comes out of your paycheck for social security and Medicare is double what it is when you work for someone else.  So you pay another 15% on that 16K.  That's $2400 (or $2354).  All the math looks annoying but correct I'm afraid.