After I input my wifes babysitting income, my fed and state refund combined dropped 2,433. if I subtract SE tax from that #, can I assume that the rest was income tax

[Brendan32]

She made 6K  the SE tax is about 1K and that seems like a large drop after entering her income.  That's about $2500 in taxes on 6K of income

[VolvoGirl]

The self employment tax on $6,000 Net Profit is about $850.  Yes the rest can be income tax.  You need to keep federal and state tax separate.  

And When you enter one taxable transaction, you can't just watch the monitor.  You increased your overall adjusted gross income and with that come many other changes in your return, not just the incremental tax on the one transaction.

Like for example it increased your AGI and that would decrease some deductions if you itemized on Schedule A.  And by increasing your AGI it might reduce some credits you were getting like EIC.

[VolvoGirl]

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.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 27.   The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 4 line 57 which goes to 1040 line 14.  The SE tax is in addition to your regular income tax on the net profit.

[Brendan32]

Ah ok this answers other questions I had, thank you!

[MinhT · Accepted solution]

When you add your wife's self-employment income, apart from self-employed tax and and income tax at your marginal tax rates, many credits may vary such as the earned income tax credit, the child tax credit etc... 

[Hal_Al]

On the down slope of the EIC curve, for each additional $50 of income, you lose $10 of EIC.  That's an effective tax rate of 20%.

12% income tax + 15% Self employment tax + 20% lost EIC = 47%. There's a new 20% business income deduction, that effectively reduces that to the 41% tax rate you are seeing (2500 / 6000 = 41%).