Is non-employment compensation really taxed that high? How can I calculate how much tax I'll pay?

Question

I'm an independent contractor who receives a 1099-MISC for non-employment compensation. I know that my total income for the year will be $24,000 because I get paid the same thing every month regardless of how much or little work I do. I am married, but separated and have lived in our apartment with our son since April and will continue to do so all year, so I can file Head of Household. My son is under 18 and I pay for the majority of his care. I tried to plug my numbers into an online tax site, deductions (standard), credits (I should qualify for EIC and Child Tax) - and it tells me that I hypothetically owe something in the ballpark of $8,000. My expenses are only in the ballpark of about $1500 a year. That can't be right. I can't owe $8000 to the federal and state government on only $24,000 worth of income. I know it's non-employment compensation, but come on - I have no other income. Is this right? Is there another way to figure this stuff up?

Answer 1

If you are an independent contractor, the compensation IS NOT non-employment compensation. The tax rate is actually EXACTLY the same as that of an employee. You just NOTICE it more because you actually have to write the check.

First you deduct actual BUSINESS expenses from gross income to find your tax base. In your case, that appears to be $9,000 ($24K - $15K). Next you pay BOTH halves of FICA (15.3%). That comes to $1,337. Than you figure regular income tax on the remainder. The $8000 is high even if $24,000 is your taxable income. It would have to include penalties for failure to make required quarterly tax payments. You need a professional tax preparer ASAP.

Answer 2

The income tax "rate" is the same whether its earned and reported via 1099 or w-2. Only dividend and long term capital gains is taxed at a flat 15%.
Call the IRS and let them calc for you....