Earned 8k in 2022, self-employed. Owing almost $600 right now. Is this normal? Added all expenses I could think of, rest of money needed to survive.

[kt_1989]

My estimated tax due right now is about $600. With adding in the over $100 to pay for TurboTax Self-Employed, I'll be out over $700 to file these taxes. I got a job at the end of last year (independent contractor), so it's my first time filing taxes; I understand there is a self-employment tax, but I had no idea so much could be taken from such a small amount. For 2023, I'm expecting to make about 25k, so I am now terrified of how much I'll owe next time. I am obviously not in a position to give away $700; what I didn't spend on my work was used to barely make it through daily life. Am I doing something wrong, or do I really owe this much?

[JohnB5677]

Unfortunately, your concerns are real.  If that was all of your income, with the standard deduction you didn't pay any income taxes.  All of the $600 was for self-employment tax.  

I suggest that you pay quarterly estimated taxes for 2023.

Please see this article Estimated Taxes: How to Determine What to Pay and When

These are the Standard deductions for 2022.  This is deducted from income before you pay income taxes.

For single taxpayers and married individuals filing separately, the standard deduction is $12,950 in 2022.

For married couples filing jointly is $25,900, and 

For heads of households, the standard deduction is $19,400.

The self-employment tax rate is 15.3%. That rate is the sum of 12.4% for Social Security and 2.9% for Medicare.

[kt_1989]

Thank you very much for your reply. What a nasty surprise! But I understand your explanation. I did notice I was originally due to pay about $1000 for the self-employment tax, but it was lowered to $600 by the EIC -- is there a way you recommend to estimate how much the EIC will be?

Similarly, about the standard deduction -- does that mean, if my income is over the standard deduction amount, I will need to pay income taxes as well?

I am estimating to make about $20-25k this year. After this experience, I want to make sure I better anticipate what I'll owe. I can't figure out if an income of $20-25k (all self-employed) means I'm required to do the quarterly payments, or if I can just set aside a percentage of my income throughout the year to hopefully have enough when it's time to file.

I know these are ignorant questions. I am trying to understand the article you linked, but it just seems to be over my head -- I apologize.

Thank you again for your time, I really appreciate it.

[Vanessa A]

Is there a way you recommend to estimate how much the EIC will be?  Yes, you can use this table to estimate what your EITC will be.  However, if your income would increase or decrease, your estimate could end up being higher or lower. Obviously, if it is higher, that would not be an issue.  But, if it is lower, say you are expecting to get $3,733 (head of household with one child) and you end up earning $10,000 more than you predicted, then your credit could drop to $1,353.  This would leave you with a shortfall of close to $2,400 and you would end up having an underpayment penalty on your 2023 return. However, if you are single with no kids, the maximum EITC you can receive is around $600 ($560 for 2022, increases yearly) but at $25,000 you would not be eligible. 

I can't figure out if an income of $20-25k (all self-employed) means I'm required to do the quarterly payments, or if I can just set aside a percentage of my income throughout the year to hopefully have enough when it's time to file.   The IRS requires quarterly payments if you expect to owe more than $1,000 for the year or if you owed tax this year.  Since you do owe tax this year and expect to owe more than $1,000 next year, you will need to make estimated payments.  If your total tax due for this year was $1,000, if you pay at least that much in quarterly payments, you would be exempt from the penalty by filing form 2210.

Similarly, about the standard deduction -- does that mean, if my income is over the standard deduction amount, I will need to pay income taxes as well? Yes, if your income is over your standard deduction you will also need to pay regular income tax in addition to self-employment tax. At $25k, for 2023, you will be in the 12% tax bracket for your personal income.  You calculate this by taking your earnings and subtracting the standard deduction which for 2023 will be $13,850. 

[kt_1989]

The IRS requires quarterly payments if you expect to owe more than $1,000 for the year or if you owed tax this year.  Since you do owe tax this year and expect to owe more than $1,000 next year, you will need to make estimated payments.  If your total tax due for this year was $1,000, if you pay at least that much in quarterly payments, you would be exempt from the penalty by filing form 2210.

Are you saying that I could already owe an underpayment penalty because of my 2022 return, unless I send in this form?

My return has already been accepted by the IRS...I'm afraid to add anything to it unless absolutely necessary. I thought I would be okay since the final amount I owed was $548? The SE tax due initially was $1100, but after the EIC was applied I think, it reduced it to $548. Is it the final number that matters as far as that $1000 rule, or the number before credits are applied?

I'm sorry, I should have provided these from the start. These were my 2022 numbers, and 2022 was my first year filing ever, if that matters:

9,000 income before any adjustments or deductions

7,700 after expenses deducted

6,191 adjusted gross income (after 1k in health insurance premiums + that 50% SE tax thing deducted I think)

0 taxable income

1,101 total tax 

553 tax payments/credits (EIC I think)

548 payment due

Thank you again for your time, I am trying my best to understand all this.

[MichaelG81]

No underpayment penalty for 2022, because you owe less than 1,000. No need to worry about the form this year, but this year you may want to make estimated payments (there are due dates), because if you owe more than 1000 in tax next year you will get hit with the penalty. 

Here is a good link about estimated taxes from IRS and how to pay, and where to send payment, and one about underpayment of estimated taxes.

@kt_1989 

[kt_1989]

@MichaelG81 Thank you so much for your reply. That is definitely a relief on the no penalty for 2022.

I've been working on understanding those worksheets from the IRS. On the 2023 Self-Employment Tax and Deduction Worksheet, for line 1a, is the expected income subject to SE tax just the income I received from being self-employed minus business expenses? Do I need to also subtract health insurance premiums here, or is that only for AGI? 

I know the form says to find this number on the Schedule C, but I believe my Schedule C from Turbotax for 2022 will look too different from 2023 with the 10k change in income. 

And do I need to factor in what I paid in this year's taxes (the $548) anywhere?

On the health insurance, in case it matters, last year, I had private health insurance I'd found on my own. I've just recently switched to insurance through the ACA though, so I'm not sure I'll still be able to deduct health insurance premiums for 2023? Right now, the full premium cost is over $500, but I'm only needing to pay about $45 on my end every month. I'm assuming I would deduct the $45 payments, if any, right?

[MichaelG81]

Line 1a is other money received not reported on a 1099NEC or 1099MISC.

Self Employment tax is calculated by taking 92.35% of your net earnings from SE or Self Employment. This is after business expenses are deducted. Here is a link to IRS about more information from SE tax.

Health insurance is line 15 Part 2 of Schedule C; another deduction. 

But since you this year have ACA you must report not only on schedule C but on your individual income tax return and allocate advance premium tax credits to income, when you receive your 1095-A next year from ACA. You can still go back to your schedule C and report the premiums paid out of pocket for self employed.

Your tax due of almost 600 does not need to be reported on any tax return, just paid. Only estimated payments need to be reported. Other refunds from taxes that need to be reported you will receive a form for, watch for guidance if applicable.

If self employed you can take a deduction for health insurance premiums for insurance. And your income after deductions, must be greater than 100% of poverty level in order to qualify for ACA credits, phased out at certain levels, depending on law in place for 2023 tax year.

@kt_1989 

[kt_1989]

Thank you for your reply. I'm sorry, I thought I was understanding this form more, but I am not seeing why line 1a is other money received not reported on a 1099NEC or 1099MISC. Why is line 1a not just the income I received from being self-employed minus business expenses? 

So the only deductions I'll need to include for net SE income are business expenses and health care premiums? Or just business expenses? 

And do you mean the ACA premium tax credits I'm receiving count as income? Do I add them to my net earnings from self employment? The adjusted gross income? The taxable income? For the purposes of just calculating this quarterly tax, what do I do with them? 

And your income after deductions, must be greater than 100% of poverty level in order to qualify for ACA credits, phased out at certain levels, depending on law in place for 2023 tax year.

This is concerning. When I applied for ACA insurance, I thought estimated income just meant my estimated income without any sort of deductions or expenses factored in. After reading what you've said, now I understand that I should've used adjusted gross income. I really need to figure out what my SE tax and adjusted gross income will be, both for these quarterly payments and for ACA now, apparently. Oh my.

My only income is a 1099NEC form. I don't have any special situations, apart from the ACA. I think I've got an idea of what to include for adjusted gross income now, if I just knew what to do about the ACA part.

[kt_1989]

EDIT: Sorry for the double post. I was trying to edit my previous reply, and somehow ended up reposting it and don't see a delete option.

Thank you for your reply. I'm sorry, I thought I was understanding this form more, but I am not seeing why line 1a is other money received not reported on a 1099NEC or 1099MISC. Why is line 1a not just the income I received from being self-employed minus business expenses? 

So the only deductions I'll need to include for net SE income are business expenses and health care premiums? Or just business expenses? 

And do you mean the ACA premium tax credits I'm receiving count as income? Do I add them to my net earnings from self employment? The adjusted gross income? The taxable income? For the purposes of just calculating this quarterly tax, what do I do with them? 

And your income after deductions, must be greater than 100% of poverty level in order to qualify for ACA credits, phased out at certain levels, depending on law in place for 2023 tax year.

This is concerning. When I applied for ACA insurance, I thought estimated income just meant my estimated income without any sort of deductions or expenses factored in. After reading what you've said, now I understand that I should've used adjusted gross income. I really need to figure out what my SE tax and adjusted gross income will be, both for these quarterly payments and for ACA now, apparently. Oh my.

My only income is a 1099NEC form. I don't have any special situations, apart from the ACA. I think I've got an idea of what to include for adjusted gross income now, if I just knew what to do about the ACA part.

[HopeS]

As a self-employed person, you can have other sources of income that are not reported on Form 1099NEC or Form 1099MISC. If you receive Cash, Venmo, CashApp, and Zelle payments these should also be included as Self Employed Income.

As a self-employed, you are allowed to take various expenses relating to your self-employment which also includes health insurance you paid. All your income and expenses will go to Schedule C of your tax return.

Your Advance Premium Tax Credit payments are not income. Your premium tax credit is based on your estimated tax projection. So you are correct, this should be your adjusted gross income and not your gross income.  

See additional information below on Premium Tax Credit.

The premium tax credit is a refundable tax credit that can help lower your insurance premium costs when you enroll in a health plan through the Health Insurance Marketplace.

You can receive this credit before you file your return by estimating your expected income for the year when applying for coverage in the Marketplace. This counts as the advance premium tax credit. You can also claim the premium tax credit after the fact on your tax return with your actual income. The amount of credit you receive depends on your estimated income and your household information, which you'll report on any application you file with the Marketplace.

If your estimated income falls between 100% and 400% of the federal poverty level for a household of your size, you can claim the premium tax credit. You may use some or all of this credit in advance to lower your monthly premium costs, leaving money in your pocket.

If you use more of your premium tax credit than your final taxable income allows, you'll need to repay the difference when filing your Tax Return. But if you use less of the premium tax credit during the year than you qualified for, you'll receive the difference as a refundable credit on your return.

What is PTC

@kt_1989