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If I work on a 1099-MISC, I will pay approximately 15% for social security and medicare. Do I also pay for state and federal taxes all the same?

For example, I see NY state tax is 6% and since I will be landing around $40K at the end of the year, federal will be either 12% or 22%.

If this is the case, if I'm under $40K this year this gives me a total tax of 15%+12%+6%=33%

If I make over $40K, this will be 15%+22%+6%=43%.

This seems a little excessive. Especially for a single person who will be making approximately $40K this year on a 1099.

Is the 1099 really such a bad deal? I must be doing something wrong. Any explanation is appreciated.

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    Note that you won't pay "12% or 22%" in federal taxes- federal tax rates are marginal, so you pay 10% on the first $9k (roughly), 12% on the next $30k (roughly), etc. And that's only taxable income (after deductions). On a 40k gross income you'll end up paying about 11% on your taxable income, which may only be about 5% of your gross income. And that's whether you're on a 1099 or W-2.
    – D Stanley
    Commented Feb 25, 2019 at 23:05
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    A very loose rule is that you should make 150% as a 1099 what you would make as a W2 employee. You also have to pay for health insurance, retirement, vacation and sick days...
    – mkennedy
    Commented Feb 26, 2019 at 0:26
  • @DStanley: Sure the effective income tax rate will be lower than the question estimates, but that hardly matters because FICA really is 15.3% as the question stated, with no personal deductions and no brackets (until you hit the cap at ~$130,000). So OP will be paying about 20% of his gross as federal tax.
    – Ben Voigt
    Commented Feb 26, 2019 at 0:48
  • @D Stanley: No, you pay zero income tax on the first $12K of income (if single, under 65, and not itemizing deductions). then 10% on the next $9K, &c.
    – jamesqf
    Commented Feb 26, 2019 at 5:01
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    @jamesqf I mentioned in the comment that the rates were on taxable income (after deductions)
    – D Stanley
    Commented Feb 26, 2019 at 14:15

2 Answers 2

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In a W2 employment situation your employer pays half of your Medicare and Social Security taxes. When you are self employed, you are both the employee and the employer and as a result you're sharing the tax burden with yourself.

This is typically referred to as "self employment taxes" but that's a misnomer as far as I'm concerned.

Remember, as a self employed small business owner you have the ability to deduct a number of expenses related to the pursuit of your business endeavors. These business expense deductions will reduce your taxable income.

The employer half of the Medicare and Social Security taxes totals to 7.65% and I suspect you'll have more than 7.65% of gross business revenue attributable to business expenses.

If this is your first year being self employed you may want to sit down with someone who has a reasonably solid grasp of business taxation and relevant record keeping.

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The main pieces you're overlooking are that any qualified business expenses offset your income, and that we don't pay income tax on our full income.

Say you have no business expenses to offset your $40,000, because you just show up at a company job-site and work there, so you have $40,000 in self-employment income. You will pay ~$5,650 in self-employment tax. Half of that is deductible without itemizing. There's also a standard deduction, if filing single this year that'll be $12,200. So with half of your self-employment tax factored in, you're looking at ~$15,000 in deductions, and there's also a 20% pass-through deduction which you likely qualify for, if so, that means another $8,000 in deductions. What's left after adjustments/deductions is your taxable income. In this example you'd actually only be paying federal income tax on ~$17,000. Most states use the federal taxable income as at least the starting point for what they'll tax you as well.

Our federal income tax is also progressive and the rates are marginal, so you'll pay 10% on the first $9,525 and 12% on the rest in your example.

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  • Thank you very much, that explains a lot of what I'm missing. I have a long way understanding exactly how deductions work, but at least it starts making sense.
    – Mike
    Commented Feb 26, 2019 at 15:12

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