My son is our dependent and a full time student. We claimed him as our dependent on our taxes and he checked the correct box as well. He also made money throughout the year which added up to be around $7500. Taxes were not taken out and considered contract work so received a 1099. He filed taxes and paid on that amount but others keep telling us that he didn't have to pay since it was under $12k and he was a full time student. Does the IRS owe this back to him then or is what others are telling us incorrect?
it would be accuate that there is no tax under $12,550 if these were W-2 wages, where social security and medicare taxes are withheld from the paychecks.
But on a 1099-NEC, those taxes are not withheld and the IRS still requires those taxes to be paid..... that is what your child is paying: the 'self employment' tax (social security and mediciare taxes( which is the same as it would be if it were a W-2. There is no 'income' tax.
If he received a 1099 he was an independent contractor and self employed. Even though he didn’t owe ordinary income tax he still had to pay self employment tax on that income
Even though he didn't pay income tax on it because it was under the Standard Deduction he does owe self employment tax on it to cover the Social Security and Medicare tax that wasn't taken out like on W2 wages. He pays both the employee and employer parts.
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 (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 (FICA). So you get social security credit for it when you retire.
The SE tax is already included in your tax due or reduced 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 are paying 15.3% for…..
SS for employer 6.2%
SS for employee 6.2%
Medicare for employer 1.45%
Medicare for employee 1.45%
Full time student doesn't matter.
The standard deduction for most people is $12,550 this year, meaning he doesn't owe income tax on amounts less than that. But as an independent contractor, he still owes self-employment tax.
Also, that $12,550 standard deduction is not universal. If a person under age 24 has unearned income (income not earned from working, like investments and prizes), their standard deduction may be less than $12,550. That's called the "kiddie tax" and would add a form 8615 to his tax return, if that was the case.
also, do the others a favor and tell them they're wrong. they may have children in the same position and thus the child could receive a nasty tax bill from the IRS. it only takes $400 of self-employment income for a return to be required.
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