Why do they make these things so confusing?
March 23, 2006 2:37 PM   Subscribe

Do I have to pay self-employment tax if I also work for someone else?

I got two tax documents this year: A W-2 and a 1099-Misc. The W-2 says I made $6200, and the 1099 says I made an additional $1400. On the W-2, they took out $225 for social insecurity and $53 for medicare. I know that the self-employment tax pays for social insecurity and medicare for contractors, but I've already paid towards these. How do I know if I've paid enough? Can I just use a 1040-EZ and add the wages from the W-2 to the amount from the 1099, or is there something else I should do/file?
posted by fvox13 to Work & Money (9 answers total)

You'll have to file both forms of income. Hopefully the taxes taken out of the W-2 will cover what you owe on the 1099 but this isn't likely.
posted by rschroed at 3:06 PM on March 23, 2006

Best answer: You'll need a regular 1040, plus a 1040 Schedule SE, which is used to calculate the money you owe on the 1099-Misc. You can read about it on the IRS web page. You'll end up owing about 15% in SS tax, but you can also deduct half of that amount from your income tax.

If you're in the least confused, I highly recommend using tax prep software like TurboTax.
posted by camcgee at 3:14 PM on March 23, 2006

Best answer: How do I know if I've paid enough?

FICA and Medicare are basically flat taxes. You know you haven't paid enough because you haven't paid any at all on your 1099 income.

The "good" news is that, since you are self-employed, you get to pay twice as much FICA on your 1099 income as you did on your W-2 income. (On your W-2 income, your employer pays half your FICA behind the scenes; the portion deducted from your paycheck is only half of what's being paid on your behalf. On your 1099 income, you are your own employer, so you get to pay both halves.) However, the employer's half of FICA is a tax-deductible business expense, which means you actually end up paying rather less than twice the usual FICA.

You probably won't get dinged for not making quarterly estimated tax payments since you're going to owe a few hundred dollars at most. However, if you make too much more than that contracting next year, you will want to do that to avoid penalties.

You can't use the 1040-EZ because you need to fill out a Schedule C, Profit or Loss from a Business. But don't worry, your tax preparation software will figure it all out for you.
posted by kindall at 3:41 PM on March 23, 2006

And a Schedule SE, forgot to mention.
posted by kindall at 3:52 PM on March 23, 2006

No intentions of cluttering the thread, but...

You're my hero for asking this question. My 18 year-old brother is in the same-ish situation, and I just struggled through the IRS website to no avail in search of an answer.

Can anybody recommend any tax software or services that streamline this process for my brother, who is not very computer or tax savvy?
posted by charmston at 4:02 PM on March 23, 2006

Can anybody recommend any tax software or services that streamline this process for my brother, who is not very computer or tax savvy?

I've used both H&R block online & Turbo Tax online, they work pretty well and are cheap (~$20?). plus they let you go back and futz with your deductions, etc so you can attempt to reduce your payment.
posted by rschroed at 4:37 PM on March 23, 2006

Best answer: Thanks for all the advice. I ended up getting TaxACT. It's free, and it seems to work. At least I now know that I can't just tack the 1099 onto a 1040EZ.
posted by fvox13 at 4:48 PM on March 23, 2006

TurboTax Premire
posted by curiousleo at 5:17 PM on March 23, 2006

To the best of my knowledge, there are no free tax packages, other than pen and paper, for 1099 employees, including TaxACT. Not only will you need the Deluxe version, but you'll also need the Deluxe + State version if your state has an income tax.
posted by sequential at 10:36 PM on March 23, 2006

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