Overpaid federal and state tax?

[jeffgee1958]

Hi, I did my taxes using turbo tax and had an adjusted gross income of  $12,041. Why was my tax due to the IRS so high? ( $4,059) State was approx $1000 due. Please help !! 

[SteamTrain]

@jeffgee1958 

1)   Which year?  2022 taxes?  or 2023 taxes people are starting on now?

Are you really looking at AGI/ or at your "Taxable income" after Std Deduction,...or After Itemized deductions?

If that $12k is actually "taxable" income after deductions, then a lot of the tax might be SS/Medicare taxes on your Self-Employment income.  The SE tax is applied to your SE net gain before the Std Ded (or Itemized Ded) is applied.

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1) IF for 2022 taxes, look at the PDF of your 2022 tax return's form 1040 to see the details.

2) If for 2023 taxes you are preparing now (even if the software is in a very crude state), you can get a look at your 2023 form 1040 thru the "Tax Tools" menu on the left side of the screen.

[jeffgee1958]

Hi, Thank you for your response. Yes, for last year, 2022 filed this year. Yes, it is taxable income. NOT adjusted income. 

[jeffgee1958]

Makes sense then if it is Medicare/SS tax on my gross income before deductions. Thank you very much for clearing that up for me. I just did not think those taxes were that high. Thanks again.

[SteamTrain · Accepted solution]

Yeah, that's a surprise to many, especially those who get 1099-NEC or other Self-employment income for the first time.  The SE tax isn't actually on your "Gross", because gross might include some W-2 income, or Interest, dividends and Capital Gains from investments...   But if your Gross, is only your SE income and nothing else, then yeah.

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Very Roughly, the SE tax is ~15% of the value on line 3 of your Form 1040's, Schedule 1,

....then for your total tax, you end up adding the regular income tax on your $12k taxable income to that.

[jeffgee1958]

one word ..... CRAZY. Thank you .... 

[Mike9241]

your self-employment tax is on schedule 2 line 4

[Critter-3 · Accepted solution]

It is not really "crazy" ... it is the norm.  When you are an employee you had 1/2 of the FICA (SE taxes) withheld from your paycheck and the employer paid the other 1/2.   Now if you are self employed you pay both sides yourself which you can do on the return when you file it or by filing quarterly estimated payments. 

If you have net self employment income of $400 or more you have to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-Nec for some of your income but you need to report all your income.  So you need to keep your own good records. Here is some reading material……

IRS information on Self Employment….
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center 

Publication 334, Tax Guide for Small Business
http://www.irs.gov/pub/irs-pdf/p334.pdf 

Publication 535 Business Expenses
http://www.irs.gov/pub/irs-pdf/p535.pdf 

There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Home & Business return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
http://quickbooks.intuit.com/self-employed

Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C.  You pay 15.3% for 2014 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 line 27 of the 1040.  The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 line 57.  The SE tax is in addition to your regular income tax on the net profit.
 


PAYING ESTIMATES
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2015  SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.

You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits. 
 
- 2. You expect your withholding and credits to be less than the smaller of: 
    90% of the tax to be shown on your current year’s tax return, or 
  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

To prepare estimates for next year, You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.

OR Go to….
Federal Taxes or Personal (H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button

[VolvoGirl]

The 15.3% is for……

SS for employer 6.2% (up to 160,200 wages & profit)

SS for employee 6.2% (up to 160,200 wages & profit)

Medicare for employer 1.45% (on all wages & profit, no max)

Medicare for employee 1.45% (on all wages & profit, no max)