As a self-employed person with a 1099-MISC, do I pay both 20% federal income tax and also 15.3% self-employment tax? That's effectively 35.3%, seems unreasonably high

[dannyb785]

As the question states, 35.3% is an extremely high tax rate especially if I only made something like $20k for the year. Is this accurate or am I missing something?

[VolvoGirl]

Sorry yes.  But the regular income tax might not be 20%.  It's at your tax rate.

You pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C.  You pay 15.3% SE tax on 92.35% of your Net Profit (If it is 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.  

The SE tax will be included in your tax due or reduce your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 23.  The SE tax is in addition to your regular income tax on the net profit.

[LudwigVan_fan]

Yes, you do pay the full rate for the SE tax on the Net Self-Employment income.  There is a deduction for some of the SE tax in arriving at taxable income.

Without knowing your full taxable situation, but based only on the $20K, your tax rate should be no higher than 12%, and after standard deduction; you should probably be in the 10% bracket.  Or, some in 10 and some in 12.

So, if $20K is your income, standard deduction is $12,550, leaving about $7,450 for taxable income.  Less a deduction for SE tax (1,413), no should have no more than $603 in federal income tax.

Assuming $20K is SE income, you pay SE tax on $18,470, which is then about $2,825

You would get a deduction of 50% of that amount to calculate taxable income. 

All of the above is based on net SE income of $20,000 and no other income and not figuring if you qualify for any credits, etc.  Effective rate then on $20K is for both SE tax and income tax is about 17%.

[NCperson]

@dannyb785 - on the 15.3%, that is really social security and medicare tax. 

If you were a W-2 employee, the IRS would collect the same amount (half from the employer and half from the employee).  So this is no different, otherwise every W-2 employee in America would want to be declared self-employed and the social security and medicare funds would go broke

As a self-employed indivual, the IRS does give you back half in the form of a deduction, which is similar to a business that pays its half of the tax and then can deduct it as a business expense.