1099-NEC

[mgmg1]

Hello, hoping someone can help here. I've spent hours researching a couple of issues with 1099-NEC. 

1. Although I've added the 1099-NEC for my husband (MFJ) and the information is there when I click on the "Update" button in the "Wages & Income" section, it shows $0 under 2023. I've tried adding, deleting multiple times and it still shows $0 even though the information is in the system and it's calculating a high amount of taxes for it. 

2. When I enter the 1099 NEC, the amount seems to be getting taxed at ~50% for the federal taxes.  The income is not pushing us into a new tax bracket or triggering any AMT etc.  The total Federal + State for the 1099 NEC income seems is adding a ~65% tax liability for that added income.   Is it because there is additional self employment tax getting added to increase the tax liability for this amount?  We've never dealt with self employment income / 1099-NEC before.  

Thanks very much for your insights here.

[Bsch4477]

There are 2 different tax issues going on at the same time with self employment income. That income is taxed as income tax at your marginal tax rate. In addition, 15.3 per cent of that income is additional taxed as self employment's tax. 

[VolvoGirl]

I don't know why it doesn't show up in Wages and Income.  I don't know where it shows in the Online version.  I know people always ask about it.  

You pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C in addition to regular income tax on it.   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 automatically 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.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 15 which flows to 1040 line 10.

[DawnC]

Form 1099-MISC or 1099-NEC reports money you earned doing work for a client or for a company as a non-employee. Think of it as the self-employed equivalent of Form W-2. 

You're required to report all self-employed income – including cash, check, and electronic payments – even if you didn't get a 1099.

As a self-employed taxpayer, you'll also see some new forms on your tax return. We'll automatically fill these out for you in TurboTax:

• Schedule C: This calculates your net profit or loss, which carries over to Schedule 1, line 3.
• Schedule SE: This calculates your self-employment tax, which shows up on Schedule 2, line 4. You get to deduct half of it; that amount transfers over to Schedule 1, line 15.
• 1040-ES: We'll generate four of these estimated payment vouchers, one for each quarter, if (like many newly self-employed people) you didn't withhold or pay enough taxes throughout the year. These vouchers are for next year's return, in case you need them.

As a business, you have the potential to reduce your taxable income by claiming related expenses and deductions. Things like rent, car payments and maintenance, supplies, and employee compensation are all deductible expenses. 

[mgmg1]

Indeed it looks like I am getting 15.3% SE tax in addition to the income tax. 

Thank you for the prompt response here. 

[mgmg1]

Many thanks @VolvoGirl for the response here.

I checked all the line items on Sched 1 & Sched 2... looks like it's flowing through as you indicate.

Unfortunately though, my tax burden for this additional 1099 NEC income is still coming through at 60+% total tax (Federal + State + SE + Medicare - SE deduction).  Perhaps it's right, I hadn't realized that it would turn out to be this high.

[DawnC]

Don't forget you can deduct expenses related to that income to lower your taxes.   If it's directly related to the work you do, you can deduct it as an expense. See this link for a list of common expenses most self-employed taxpayers will want to review.