Tax Dues Seem too High

[mayanataros]

Hi there, I’m a student who spent all of 2023 as an independent contractor. I did not pay quarterly taxes. When I went to do my tax return in April 2024, it calculated that I owed between $4000-5000. That number does not seem right to me, as I’m a student who was working part time, and only made a little more than $20,000 last year. I am confused on why my taxes would be that high given my status as a student and as a part time,  low income worker. 

[Jackstar221]

Hi,

Here is an estimated taxes link. Estimated Taxes
Within this link, there is the Tax Withholding Estimator. Tax Withholding Estimator

You can use that link to compare the calculations, they should be similar to the amount owed that was shown in TurboTax, and TurboTax's calculations are very likely to be correct based on what was entered into TurboTax.

You may have received a 1098-T (tuition), or 1098-E (expense) forms from your educational institution which can be entered in the deductions and credits section of TurboTax. I suggest logging in to your school's portal, or asking them if you received those forms.

You may also be able to write expenses off under the self-employment income and expenses section of TurboTax, such as mileage, home office, office supplies, and even the TurboTax fee that you paid in 2023, for the 2022 tax year (you can enter that as an other expense or as a legal & professional fee within the self-employment income & expenses section of TurboTax).

[LoraineG]

The first thing you should check is if you have been misclassified.  When you have income as independent contractor and you have little to none expenses to be claimed, you may be an employee.  How it affects you is because you are not getting any withholding and you are subject to self-employment taxes.  Most likely what is creating such a huge tax liability is income from self-employment with no expenses.  You pay 15.3% of taxes on the whole amount if you don't have any expenses.  Student status or being part time doesn't have any effect on the outcome, other than you may be entitled to claim some student credits.  But the bottom line is check your worker status.  You may want to read this.

[NCperson]

@mayanataros - this is embedded in the expert's response, but I thought I would write it in layman's terms.

The IRS is required to collect  Social Security and Medicare taxes.  Those taxes are 15.3% of your earnings.

When you are a W-2 employee, your employer pays half and you pay half (it's withheld from your paycheck).  The employer then takes a deduction for his half as a business expense. 

Since you are self-employed, there is no paycheck to withhold this tax.  So you owe the whole 15.3% on your income tax form and then get a deduction for half, similar to what the employer is able to do.  this is called the "self employment tax".

Then there is the income tax. 

that is why your gut feel is that the tax is high.  it's not that it is high, it's just there are two taxes you are paying - just like the W-2 employee. 

if you made $20,000, then the self employment tax is going to be around $3000.  And then the Income tax is going to be around $400.  ($20,000 less the standard deduction of $14,600 less $1500 for the SE deduction and then 10% tax on the remainder).