1099-MISC tax owed is weirdly high

[eric-hs-chen]

I paid a self employment tax estimate for $20,000 in income. However, I now have $40,000 on my 1099-MISC due to unforseen income.

When i fix my 1099-MISC income from $20k to $40k, my taxes due jumps from Federal: $1200 to $9000, and state from $250 to $1950.  

This seems a bit much, as the difference in tax owed is $13.5K.  

It doesn't make sense to me that i'd owe an extra $13.5K for an extra $20k in income. Did i do something wrong?

[AnnaB · Accepted solution]

Yes, this seems to make sense based on the following calculations:

• $20,000 x 15.3% self-employment tax = $3,060
• $40,000 x 15.3% self-employment tax = $6,120

In addition your income is subject to income tax.  Say you are in the 15% tax bracket, that's an additional $6,000 for the additional income.  This totals $12,120 before any business deductions or credits.

In regards to the state, your income jumped $20,000 which likely changed your tax bracket and therefore, you owe more.

Your original projections seem low and your actual figures seem accurate.

[eric-hs-chen]

For the initial $20k, i did pay a 1040-ES of $6000 already though, which would have covered that $20,000.  Assuming that $6000 tax covers the initial $20,000, wouldn't my federal tax owed be $7200 or so, and not $9000?

Sorry for all the 'dumb' questions... I guess i'm just trying to wrap my head around this.  

I looked at the tax brackets for state, and I won't be jumping brackets either..

So based on your math, please correct me if i'm wrong:

- 20,000 x 15.3% self-employment tax = $3,060
- $40,000 x 15.3% self-employment tax = $6,120

It also looks like the difference between $20,000 and $40,000 taxes owed is roughly $3000, not the $7800 difference that turbotax is showing.

[AnnaB]

Did you enter the estimated payments into TurboTax?

Your bracket may not have changed, but you still owe state income tax on the income.

[AnnaB]

You may also be in a bracket higher than 15% which is what my example was based off of.

[eric-hs-chen]

I did enter my estimated payments already into Turbotax. and i understand that your 15% is an example, but based off the math I tried I think it still conveys correctly?

[AnnaB]

It doesn't seem that far off and TurboTax a 100% accuracy guarantee.

[fanfare]

Are you single? The tax on a single person at that income level is onerous. 

You can open and fund an SEP IRA.

Ask TurboTAX to "maximize my SEP contribution' to find out how much you can put in.