SE Tax

[AbbieT]

I made $6100 in W2/Sch C income that I put in a Roth IRA, and I trying to make sure I properly file.

1.   My dad will claim me as a dependent.  Does that mean I do NOT get the $12,500 standard deduction?

2.   Sch 1, line 15 deducts half of 92.35% of my taxable SE income.  However, I have not yet paid any SE tax.   Will I pay those taxes when filling out Schedule SE, such that my taxes due will be $6100 x 92.35% x 50% = $5633 taxable income x (12.4% + 2.9%) = $698 + $163 = $861 in SE tax that carries to Schedule 2?

Thanks!

[RaifH]

No, as a dependent your standard deduction will be your amount of earned income + $350 up to a maximum of $12,550. 

Even if your deduction wipes out all your income, you will still be responsible for paying your self-employment tax. As you said your self-employment tax is 15.3% of 92.35% of your SE income. This does not include your W-2 income. Self-employment income is generally reported on a 1099-NEC, but depends on the line of work that you are in and how your income is received.

The amount you see on Schedule 1 for the deduction of half your self-employment tax is done behind the scenes when you reported the self-employment income. Same with the tax reported on Schedule 2. If you do have self-employment income, the amount of income can be reduced by any ordinary and necessary business expenses that you incurred to generate the income.  Be aware that if you start including expenses and your total earned income drops below $6,000, you will no longer be able to make the maximum Roth IRA contribution.

[AbbieT]

Thank you, but maybe I mischaracterized my income.  I write code for my Dad's business, which issued me a W2.  So are you saying that this W2 income is NOT self-employment income subject to the 15.3% SE tax?

Was my Dad supposed to withhold SE tax from my payments?

Thanks

[DianeW777]

Yes, a W-2 is not self employment income or self employment tax, depending on your age.

It depends, your dad was not required to pay social security or medicare tax if you fit the criteria below.

• Payments for the services of a child are subject to income tax withholding regardless of age.
• Payments for the services of a child under age 18 are not subject to social security and Medicare taxes.  If the child is 18 years or older, then payments for the services of a child are subject to social security and Medicare taxes. 
  • IRS Family Help

[AbbieT]

Oh, wow.   His business is a solely-owned, passthrough LLC that flows LLC net income through his Sch E.  Therefore, when the IRS link says "parent’s sole proprietorship", would his LLC count as a passthrough sole proprietorship?

...

If the business is a parent’s sole proprietorship or a partnership in which each partner is a parent of the child:

• Payments for the services of a child are subject to income tax withholding regardless of age.
• Payments for the services of a child under age 18 are not subject to social security and Medicare taxes.  If the child is 18 years or older, then payments for the services of a child are subject to social security and Medicare taxes. 

[GeorgeM777]

Possibly.  According to the IRS, a sole proprietor is someone who owns an unincorporated business by himself or herself.  However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.  In order to treat an LLC as  corporation, the owner of the LLC would need to elect S Corp status or C Corp status.  

Unless your father elected for the LLC to be taxed as a S corp or C Corp, then the LLC will likely be treated the same as a sole proprietorship.  

@AbbieT