Just a suggestion. Wish you could be more clear on taxes withheld for 1099s. Not aware that SS and medicare are part of the tax liability. No clear answer anywhere.

[kcox6]

There is not really a clear explanation anywhere that Social Security and Medicare are mandatory for taxes on 1099s.  For those new to it, this is very confusing.  Wish it could be more clear somewhere in the program.   

[Lisa995]

what type of 1099s?  There are about a dozen of them.

Do you mean you were paid as an independent contractor and now owe Self Employment taxes (SS and Medicare) on your earnings?

[VolvoGirl]

Yes that is surprise to some people.  You didn't have taxes withheld from your pay so you have to pay it on your tax return   (both the employee and employer parts)

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 27 (goes to 1040 line 7).   The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 4 line 57 (goes to 1040 line 14).  The SE tax is in addition to your regular income tax on the net profit.

[kcox6]

Yes, the self employment 1099's.  Sorry wasn't clear on that.  We just couldn't figure out why my Daughters tax liability was almost $3k on a $10k taxable income.  It just wasn't spelled out anywhere and it was driving us crazy.  So really just wondering if there was any way to implent a little more clarity in the program itself.  

[Coleen3]

It is on the back of the 1099-Misc under Box 7.
Box 7. Shows nonemployee compensation. If you are in the trade or business of catching fish, box 7 may show cash you received for the sale of fish. If the amount in this box is SE income, report it on Schedule C or F (Form 1040), and complete Schedule SE (Form 1040). You received this form instead of Form W-2 because the payer did not consider you an employee and did not withhold income tax or social security and Medicare tax.

[kcox6]

Thank You VolvoGirl.  It would just be helpful if this was clearly spelled out in the program somewhere when going through the process.   

[kcox6]

Thanks TurboTaxColeen.  This is good to know for sure.  This is the first time my Daughter had a 1099 from her nail tech salon and it just wasn't real clear on why her tax liability was so high.  We just were unaware that it included SS and medicare.  Would be nice if at the end, you could click on the tax liability and it would break out by Fed, SS and medicare so you could see it and understand it.  Thanks all for the help.   Maybe you could pass along the suggestion to the turbo tax programmers!!!    

[VolvoGirl]

Did she enter any expenses? She can deduct things she paid for herself and any chair rent or commissions she paid to the owner.  

[kcox6]

Not many.  She really is just an employee.  No booth space to rent.  She does buy supplies but that's about it.  And she just travels to the same salon every day, not to various locations, so she can't really claim travel.   

[VolvoGirl]

For next year Some general info.  You will need to keep good records.  You may get a 1099Misc at the end of the year if someone pays you more than $600 but you need to report all your income no matter how small.  You might want to use Quicken or QuickBooks to keep track of your income and expenses.  

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  You will need to use the Online Self Employed version or any Desktop program but the Desktop Home & Business version will have the most help.

Here is some IRS reading material……

IRS information on Self Employment
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business
http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses
http://www.irs.gov/pub/irs-pdf/p535.pdf

If she still gets paid as an independent contractor she should send in some estimates to cover the tax due.  There was probably a penalty on her line 23 for not paying in during the year.  The first one is Due today April 15

You must make quarterly estimated tax payments for the current tax year if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
 
- 2. You expect your withholding and credits to be less than the smaller of:
    90% of the tax to be shown on your current year’s tax return, or
  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

To prepare estimates for next year you start with your current return, but be careful not to change anything.  For Online versions, if you can't get back into your return, Click on Add a State to let you back into your retun.

You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.

Or Go to….
Federal Taxes or Personal (Desktop H&B)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button

[kcox6]

Well, I did have her pre-pay to the IRS at the end of last year, but we sort of guessed just based on the Federal tax.  Had no clue that SS and medicare was mandatory as well, so we shorted it.  But at least she didn't get the penalty.  She will do quarterly payments now based on Fed, SS and medicare.  We just didn't know.   I feel bad for her because I was telling her about how much she'll owe and it ended up being way more.  So my fault really as I've never done the 1099 thing.   Just didn't advise her correctly.   Thanks for the info above.  We'll use it.