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robert_tee
New Member

Why is my self-employment tax so high?

I play music on the side occassionally and I received a 1099-MISC for $600 I was paid in 2016. I entered this into TurboTax after all my regular wages and other tax info. When I entered the $600, it dropped my refund by about $300! But in TT it says my self-employment tax is only $85. Why is this happening? Thx!
1 Best answer

Accepted Solutions
ChristinaS
New Member

Why is my self-employment tax so high?

Adding income to your return can have a domino effect.

While the SE tax on that would be $85, you have to also consider:

-regular income tax. If your regular tax is a "typical" 15%,that would be about $90. We can't see your return, so obviously your tax rate can be higher or lower than this.

-the impact on income-based tax credits, like the Earned Income Credit, Child Tax Credit, IRA deduction, student loan interest deduction, and much more. Almost all deductions and credits are negatively impacted by adding income. A small amount could have a large impact.

If your SE tax is $85, that means you have no expenses. I would recommend that you make the amount in the 1099-MISC $0 and analyze the numbers on your tax return (i.e. write them down). Put the $600 back on the 1099-MISC and do the same thing. You can't figure out all the differences without looking at your tax return - there are too many possible impacts from adding income.

  • My Account
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  • View Tax Summary
  • Preview 1040
  • Look at deductions, credits and other pertinent items on your return to see how this "domino effect" played out

 

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2 Replies
ChristinaS
New Member

Why is my self-employment tax so high?

Adding income to your return can have a domino effect.

While the SE tax on that would be $85, you have to also consider:

-regular income tax. If your regular tax is a "typical" 15%,that would be about $90. We can't see your return, so obviously your tax rate can be higher or lower than this.

-the impact on income-based tax credits, like the Earned Income Credit, Child Tax Credit, IRA deduction, student loan interest deduction, and much more. Almost all deductions and credits are negatively impacted by adding income. A small amount could have a large impact.

If your SE tax is $85, that means you have no expenses. I would recommend that you make the amount in the 1099-MISC $0 and analyze the numbers on your tax return (i.e. write them down). Put the $600 back on the 1099-MISC and do the same thing. You can't figure out all the differences without looking at your tax return - there are too many possible impacts from adding income.

  • My Account
  • Tools
  • View Tax Summary
  • Preview 1040
  • Look at deductions, credits and other pertinent items on your return to see how this "domino effect" played out

 

robert_tee
New Member

Why is my self-employment tax so high?

OK, I did that and I see that it impacts a number of areas, including Net Investment Income Tax, which is involved with other income. Hard to believe that just $600 has that much impact. Net effect is I lose 50% of that income. Lucky for me, this is all there is! Thanks.
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