I was sent a 1099-misc by an employer and I am required to claim as self-employment. Why is this? Why do I owe so much money when I didn't make very much?

[Hal_Al]

The IRS considers anything in box 7 of 1099-MISC to be self employment income. . You'll also have to pay self employment tax (SET) (social security & Medicare) on any profits greater than $400.  SET is  15.3% of your net income and is in addition to any income tax. Credits can not be used to reduce or eliminate SET

[nisse073]

So then why does it say that I owe $355 for Fed when I made $2,510? Wouldn't it be $164.06?

[Hal_Al]

$355 is correct.
2510 x 0.9235 x .153 = $355

[nisse073]

Where does the .9235 come from?

[Hal_Al]

It's complicated. The simple answer: "that's how they do it".

For a W-2 employee, the employer pays 7.65% FICA (social security & medicare) tax and the employee pays 7.65%. Since the employer has paid half of the total FICA tax, the employee has essentially been paid 7.65% more than what shows on his W-2 and pay stub. But neither the employer nor employee has to pay FICA on this additional 7.65% of “income”. So, to give the self employed the same tax break, his self employment income is reduced by 7.65% (multiplied by 0.9235) before SET (self employment tax-FICA) is calculated. This, effectively makes the SET rate 14.13%, instead of the stated rate of 15.3%. See schedule SE for  your calculations.