1099-MISC: What counts as taxable income?

[proudapron]

Hi everyone!

I've got a full time WE job and am close to the next tax bracket. I just started a 1099-MISC job on the side and looked at an example 1099-MISC form and don't understand something.

On my W-2 paystub it includes "Taxable Income" but on a 1099-MISC I see no such mention.

Question: What constitutes taxable income for a 1099-MISC job? Is it gross income, or net after expenses (gas, maintenance, office, etc), or something in between?

I'm trying to calculate how much I can make with this 1099-MISC job before I get bumped to the next tax bracket.

Thanks!

[BillM223]

When you enter a 1099-MISC with a dollar amount in box 7, this goes to a Schedule C in your 1040.

This is the "return" for your solely owned proprietorship business.

The 1099-MISC (and maybe other things) are the income on Sch C, and you are able to enter expenses. 

The net income (gross income minus expenses) will be added to your 1040 as taxable income.

More importantly - because this escapes most people who file a Sch C for the first time, you also must pay self-employment taxes on this net income (well, 92.35% of it anyway). This is the same as the Social Security and Medicare taxes on your W-2 - only you have to pay all 15.3% of the self-employment taxes.

To offset set this a little, half of the SE taxes are carried over to Schedule 1 (line 14) to reduce your taxable income.

But on the whole, you will pay upwards of your marginal tax rate (from your tax bracket) plus 15.3% on your net income when you add a business.

Now the SE tax does not affect your tax bracket (only the Sch C net income does), but it will bump up your tax due, potentially by a lot. You have to prepare for this.

[Opus 17]

For side gigs, you file a schedule C.  You are required to keep accurate business records and report all your expenses and income, even if you don't get a 1099 from all your clients or customers.  Your "ordinary and necessary" expenses are subtracted from your income, and the resulting "net income" or profit, flows to the form 1040 where it is combined with your other income, deductions and credits to calculate your income tax.  The net income also goes to schedule C to calculate 15% self employment tax.

So as far as estimated payments are concerned, if you expect $5000 in net profit, your estimated payments should be 30% (15% income tax bracket plus 15% SE tax), or 37% (22% income tax plus 15% SE tax) or possibly higher. 

[Hal_Al]

Simple answer: the entire amount, in box 7, of a 1099-Misc is taxable income.   Technically, it is "reportable" income.  Your "taxable income" is after all deductions have been taken.

As others have said, Schedule C income is subject to Self Employment Tax (SET), as well as income tax. SET is how the self employed pay their social security (12.4%) and medicare tax (2.9%). There is a $137,700 (2020) cap on the amount of income subject to social security tax. So, if your W-2 income is close to this, not all your self employment income will be subject to the social security portion of SET