My wife earned $950 working at a local store. Received a 1099-MISC. When I enter it, our refund drops $450, or 47%. How can this be higher than the highest tax bracket?

[WillK · Accepted solution]

When you earn income that is reported on a 1099-MISC you are not only paying your normal federal and state tax rate, but you are also paying an additional tax of about 15% called the self-employment tax . When you are an independent contractor (or considered self-employed) taxes are taken from your wages at the time you are paid, so you are responsible for the taxes. 

When you are an employee of a company you paid your normal federal and state tax rate, along with FICA, social security and medicare (which are about 7%). Your employer pays the other 7% of social security and medicare to the government.

When you are self-employed you are now responsible for the entire social security and medicare rate which is about 15%. For example say your federal tax rate is 25%, your state tax rate is 6%, and now you are paying an additional 15% self-employment tax you can be paying 46% of taxes on your self-employment income. 

[sgelfand1]

Thank you!

[WillK]

Absolutely!