Filing W2 and 1099 at the same time and refund seems too high?

Question

I gave my employee a W2 and he has a 1099 from a previous employment. $9700 from W2 and $14,000 from 1099. We calculated his refund on H&R Block's website and it seems to high, (over $5000.00) He has 3 dependants, 2 childs under 4 and his wife. Is this accurate? He is paying pre-school for one of his kids, bought a used car last year and a laptop. can this be the reason? Thanks everybody.

Answer 1

Based on a quick calculation, it appears that his tax would be about $2,000 (self employment tax on the $14,000) less about $1,700 of Child Tax Credit. If he had no expenses relating to the $14,000 of 1099 earnings, he would not be eligible for EITC.

Therefore, if his refund is $5,000, he would have had to have had withholdings of $5,300 on the $9,700. That proportion seems extremely high. This is also assuming that he did not pay any estimated tax payments.

I would make the calcuation again. Seem a little high to me based on the assumptions that I made.

Answer 2

That depends totally on what he paid in. What matters is what his taxes came to. Did you include the self-employment tax of 15.3% for the 1099 income?

He could have an earned income credit of around $2660.

Paying for preschool would not be deductible unless his wife works also or is a full-time student. The used car and laptop might be deductible from his 1099 income if they could be considered expenses for his business, but otherwise probably would not and in any case would not be all that much.

I agree that $5000 sounds awfully high unless there's something major left out. The lowest his taxes could be is zero, then add on the Earned Income Credit and maybe an Additional Child Credit, it still doesn't come near $5000. If he had way too much deducted from his paychecks, or made large estimated payments that he would not have needed to, then he could definitely have a $5000 refund coming.

He'd be eligible to get his taxes prepared at no charge at a VITA or TCE site - see irs.gov for more info on those programs. Most sites will efile the returns, and also do the state returns.

Answer 3

That may be correct once you figure in the EITC and child tax credits. He has $16,900 in the standard deduction and the children's exemptions alone, less any business expenses on Schedule C for the 1099 income, so there's not a lot of taxable income there.

The pre-school for the kid is not deductible.

The used car and laptop may be partially deductible as business expenses on Schedule C if used in the business that triggered the 1099 form that he received.

Answer 4

as far as IRS is concerned, its legal. no, you don't get to choose. PA -- you'll have to google PA law or get lucky here, i'm clueless. *** sounds to me as though employer re-organized her/his business in 2010, going from an employee model to a "rent-a-chair" model. that may make sense for him/her from a legal liability standpoint as well as others. example: if s/he only rents chairs, then you are wholly responsible for reporting tips received as income on your taxes and paying the social insurance taxes this requires. further, you have to carry [buy] your own liability insurance against your possible errors that might injure a client.

Answer 5

Yes but should be higher. File a schedule C on the 1099 income for expenses and it should be much higher.