This is because she is subject to self-employment taxes. Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves or that receive at 1099-MISC. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners and this is why although the net taxable income is zero she is still responsible to pay self employment taxes.
When you're
an employee, you share that cost with your employer, with each of
you paying a share of the FICA tax. When you're self-employed, though,
you're stuck with the full amount yourself.
Self-employment
taxes consist of
- 12.4% for
Social Security. For 2016, this part of the tax applies to the first $118,500 of
earnings. If you earn more than that (from self-employment or, if you also
have a job, from the combination of your job and your business), then the
12.4 percent part of the tax that pays for Social Security stops for the
year.
- 2.9% for
Medicare. The
Medicare portion of the self-employment tax doesn’t stop. No matter how
much you earn, you'll pay the 2.9 percent Medicare tax.
