Confusion about Self-Employment Tax?
I’m a full-time student who worked sporadically last summer and fall moving furniture. I received a 1099c stating I earned about $4400. With my education expenses, and other deductions, my “net income” is something like -6000 dollars.
However, Turbo Tax is telling me that I still made about 4300 dollars in “business profits” and that, despite living a student loan debtors life with a hugely negatively net income I still owe 615 dollars for business income. Is this right? Do I need to pay 613 dollars despite my income being incredibly inadequate to my expenses?
I did mean misc. Thank you Wayne.
Thanks Anna. It did dawn on me that there were probably “business expenses” that could be deducted.
This is one of the most misunderstood of all tax laws.
Your employer basically scammed you. It sounds like you were an employee — employer was supposed to take federal and state income taxes, and 7.65% for social security taxes from your paycheck (and he was supposed to match your social security taxes with another 7.65%).
Instead, he paid you like a self-employed person which requires you to pay ALL the social security taxes. This 1099 has to be reported on a Sch C. Any profit is subject to the to social security tax. Congress did give you a small break in that you pay 9.235% instead of the full 15.3%.
This Sch C stands on its own. Even though you have negative income when the standard deduction and personal exemptions are deducted, you still owe that social security tax. NOTE; This is social security tax, not income tax – they are distinctly separate taxes as you are learning.
Don’t work for someone who refuses to pay his portion of the social security tax – it makes a big hit at the end of the year. It is better to have a small paycheck each payperiod than to have to pay such a big lump sum at the end of the year.
You might talk to your preparer about finding additional expenses to offset some of the 1099 income. For example, did you have to drive your car to pick up the truck – mileage could be deductible. Any overnight trips would incur per diem lodging and meals expense. Did you have to buy or launder a uniform – that’s deductible. Were you required to have a cell phone – can prorate some of that cost. Get the picture? Try to reduce your net profit and cut the SS taxes.
Good Luck!!!
