Why does 1099-misc income affect my refund by so much?I entered $1250 in 1099-MISC income and it reduced my refund by $564- that's like a 45% tax!

(Asked 02/04/08, Views 1,967)

Depending on what the 1099-MISC had on it represents as Self Employment. Taxes were not taken out.

(Posted 02/04/08)

That is possible.

Most of the time the 1099-Misc will be considered self employment income. Self employment income is subject to self employment tax (SE tax). SE tax is in addition to your regular personal income tax & is computer at roughly 14% of your self employment income (When you get a W2 your employer withholds FICA taxes from your paycheck and, as an employee benefit matches the amount of FICA that you pay, but as a self employed person you pay the full amount - SE tax is the self employed persons FICA). So if you didn't have any deductions to offset that $1,250 in income your self employment tax on $1,250 would be about $177. If you are in a 30% income tax bracket then you could have another $375 in taxes owed on the $1,250.

Now, do you have any expenses that you can write off against the $1,250? Mileage? office in the home? You may be able to make a significant reduction in your taxes if you have any business expenses.

(Posted 02/04/08)

When you have 1099-Misc income, you must pay self-employment social security and medicare taxes on this income plus federal taxes on this income. You'd pay about $177 on SE tax, plus the extra federal taxes.

(Posted 02/04/08)

If you have expenses to write off against the 1099-misc income this will reduce the self employment tax that you owe.

(Posted 02/04/08)