Why is my Self employment tax so high?

Question

I have a couple of 1099s and have calculated that I owe about 100$ federal taxes, that comes to 900$ over what I paid in regular jobs (I mean if I didn't have those 1099 I would get 800) I know part of it is social security and medicare but it's still high. Also i didin't make any estimated payments since i had no clue i would make this much will i be penalized?

Answer 1

The self employment tax is structured to resemble the Social Security and Medicare taxes that are taken out of your paycheck when you work for a company. The SE tax has two parts: social security and medicare. The social security part is 12.4% of your first $94,200 of net earnings. The medicare part is 2.9% on all of your net earnings. These two taxes add up to 15.3% of your net earnings (up to $94.2k, after which you don't pay the social security part.)
When you work for a company, the employer pays half of the social security part (or 6.2%), and you pay the rest. When you are self-employed, you have to pay the whole 12.4%. If you made no estimated payments, you wil be penalized, but it's not a huge penalty. You probably need to go to a professional tax preparer to figure out how much the penalty will be, and how to figure out your estimated tax payments for 2007. The first estimated tax payment is due on April 15. The SE tax is only applied to your net earnings, what you have left after you have paid all the expenses of your business. There is a lot of information on this subject online at www.irs.gov - just search on "self employed." Good luck.

Answer 2

When you're self employed (work on 1099's) you pay both the employer and employee halves of social security and medicare. If you were working as an employee, you'd have half withheld from your paycheck, and your employer would pay in an equal amount. The self-employment tax, at 15.3%, is both halves.

Answer 3

I will address your last question about penalties. The link below is the an IRS page regarding underpayment penalties. Generally, you are not penalized unless you owe at least $1000. If I read your question correctly, you meat that exception.
Self employment taxes are the equivalent of both the 'employee' and 'employer' halves of Social Security and Medicare taxes. In reality, the employee pays both halves in the form of a lower pay rate than they would receive without the 'payroll tax',