Income Tax Due

[-U3R2Me-]

My daughter is a college student in graduate school.  She is less than half-time because the courses are difficult and outside her undergraduate degree course of study.  In 2019 she volunteered with a non-profit equine adaptive therapy facility.  At the middle of the summer, they asked her to help feed the 13 horses and paid he as a 1099 worker (No issues here - no taxes withheld).  Total wages earned are $1200.00 - she has no other source of income for now.   She lives with my wife and I to share expenses helping her through school.

Working through TurboTax the amount of tax due is $87.00.  For not-married filing single, with a $12,200 standard deduction, I am not understanding taxes on the small income.  Also the over $4200 for her individual health insurance, the $2600.00 for tuition, books, and supplies, seem to have no effect due to the standard deduction.  

Thoughts and recommendations from the community?  Am I missing an area of opportunity?

Respectfully

[xmasbaby0]

The standard deduction does not negate the fact that she had self-employment income of $1200 and has to pay self-employment tax for Social Security and Medicare for her self-employment income, since it was not taken out of her pay.  

You have not mentioned her age, nor have you said if you claimed her as your dependent, so it is hard to answer you.  However with so little income it seems likely that you would be claiming her.  

She is a graduate student so is not eligible any more for the American Opportunity Credit.  But grad students can use the Lifetime Learning Credit.  If she is not being claimed as your dependent, she can enter the education credit on her own return--did she use the Lifetime Learning credit?  If she is your dependent the credit goes on your return.

The education credits are not related to her standard deduction.  A credit reduces the tax you owe.  

She cannot deduct anything for her health insurance since she cannot itemize and enter medical expenses

https://ttlc.intuit.com/questions/3262984-who-is-eligible-for-the-lifetime-learning-credit

The other thing you may not realize about that standard deduction if she is being claimed as your dependent:

For 2019, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,100 or the sum of $350 and the individual’s earned income (not to exceed the regular standard deduction amount).

Edited:  I took a second look at the amount of tax you say your daughter owes  -- are you sure it is not $187 instead of $87?  Self employment tax is 15.3%, and you said she made around $1200.  $187 would be more like it.

[VolvoGirl]

She did not get wages and was not an employee.  She was an independent contractor and got self employment income.  Actually on 1,200 self employment income she would owe $170 SE tax.  Did she write off any expenses against the 1,200?

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.  

$1,200 x .9235 = $1,108

$1,108 x .153 = $170

[NCperson]

how is it you only got $87? that doesn't seem right... the $170 that @VolvoGirl calculated makes sense.

Also, how old is she? is she is eligible to be your dependent, it has to be answered that way, whether or not you actually claim her.    The standard deduction shouldn't be $12,200 if she is eligible to be your dependent. ...it should be earned income plus $350 or $1465 ($1200 - $85 + $350)... it won't make a difference in the final result as the $170 is due for Social security and not income tax. 

[AlexanderS08]

Because your daughter received a 1099, she has self-employment income and is paying self-employment tax. You will see this amount reflected on line 15 of Form 1040. This is not an income tax, it is Social Security and Medicare Tax.

A self-employed individual is also able to deduct one half of the self-employment taxes as an adjustment to compensate for the fact that a self-employed individual is paying both sides of the tax, compared with an employee that only pays 7.65%.

There is also a 20% reduction in the income related to the Qualified Business Income Deduction. 

It seems as though once these two items are taken into account (TurboTax will usually automatically take these), the $87 sounds accurate.

[dmertz]

The qualified business income deduction can only reduce income taxes, not self-employment taxes.  Income is already far too low to be subject to income taxes.

The balance due is coming from self-employment taxes.  That is partially being covered by so refundable tax credit on Form 1040 line 18, perhaps Earned Income Credit if she is age 25 or over, or maybe American Opportunity Credit.

[-U3R2Me-]

Thank you and I appreciate your time and help.

Respectfully

[-U3R2Me-]

Thank you and I appreciate your time and help.

Respectfully,