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15% tax on $7.5k earnings. Is that right?

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15% tax on $7.5k earnings. Is that right?

If I pay taxes on my earnings, would someone also pay taxes on the same earnings if I subcontract them and pay a share?Graduate student stipend 1099-misc taxes seem to be coming out too high. Am I doing something wrong?UK self-employed freelancing in Japan. Who do I pay tax to on my earnings?UK Income tax relief for ISAs: How does the sheltering of earnings work?How does a tuition insurance payment affect 529 withdrawals?Does receiving a 1099-MISC require one to file a tax return even if he normally would not be required to file?Can earnings reported in boxes 3 or 7 on a 1099-misc be contributed toward an IRA?Managing Side Income from Online Earnings. Tax QuestionNon-resident alien taxHow to report 1099-MISC Box 7 bonus ($0 in box 3), but not an independent contractor and not self employed (payment from client of my employer)

20

1

This year is my first year in the USA. My sole earnings were an honorarium from a university for $7,500 -- reported on a 1099-MISC form in box 7.

For this, I was on-site for a few days and talked about my particular technical expertise with university staff, and joined them in a publication.

However, as I have just been unpleasantly informed by turbotax, this does not make me a poor person earning under the $12k deductible. This makes me a self-employed business and thus I have to pay about 15% taxes on these earnings.

This seems completely crazy. Have I missed something?

united-states taxes self-employment

share|improve this question

edited yesterday

A-Foreign-Scientist-2018

asked yesterday

A-Foreign-Scientist-2018A-Foreign-Scientist-2018

10114

New contributor

A-Foreign-Scientist-2018 is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

• 
  
  
  

  
  8
  

  
  
  
  
  
  

  
  
  As your user name says "A Foreign Scientist", check your visa against this list. There is a paragraph that develops this statement "A NONRESIDENT ALIEN is not liable for the self-employment tax." irs.gov/individuals/international-taxpayers/…
  
  – user662852
  yesterday
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  Thanks -- I have an I-765 EAD and therefore I am a resident alien.
  
  – A-Foreign-Scientist-2018
  yesterday
  

  
  
  
  


• 
  
  
  

  
  14
  

  
  
  
  
  
  

  
  
  You will need to verify whether you are a non-resident for tax purposes - this is different from immigration definition. If you are a NR for tax, you cannot use Turbotax, as it does not offer support for this - find software that support form 1040NR (non resident).
  
  – Najel
  yesterday
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  @Davislor - the urban legend is about income tax, not just any random duty on a gallon of gas.
  
  – Davor
  yesterday
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @Davor Seems my comment was removed. I’ll respect that. I note that nobody who repeats that talking-point ever puts it in context. Bailey: “That’s technically true only of one kind of tax, only because most of the money most taxpayers send to the IRS every year technically counts as another kind of tax. Also, 47% was only true at the bottom of the worst recession in seventy years.” Motte: “Half of Americans pay no taxes!”
  
  – Davislor
  21 hours ago
  
  

  
  
  
  

 | 
show 2 more comments

20

1

This year is my first year in the USA. My sole earnings were an honorarium from a university for $7,500 -- reported on a 1099-MISC form in box 7.

For this, I was on-site for a few days and talked about my particular technical expertise with university staff, and joined them in a publication.

However, as I have just been unpleasantly informed by turbotax, this does not make me a poor person earning under the $12k deductible. This makes me a self-employed business and thus I have to pay about 15% taxes on these earnings.

This seems completely crazy. Have I missed something?

united-states taxes self-employment

share|improve this question

edited yesterday

A-Foreign-Scientist-2018

asked yesterday

A-Foreign-Scientist-2018A-Foreign-Scientist-2018

10114

New contributor

A-Foreign-Scientist-2018 is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

• 
  
  
  

  
  8
  

  
  
  
  
  
  

  
  
  As your user name says "A Foreign Scientist", check your visa against this list. There is a paragraph that develops this statement "A NONRESIDENT ALIEN is not liable for the self-employment tax." irs.gov/individuals/international-taxpayers/…
  
  – user662852
  yesterday
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  Thanks -- I have an I-765 EAD and therefore I am a resident alien.
  
  – A-Foreign-Scientist-2018
  yesterday
  

  
  
  
  


• 
  
  
  

  
  14
  

  
  
  
  
  
  

  
  
  You will need to verify whether you are a non-resident for tax purposes - this is different from immigration definition. If you are a NR for tax, you cannot use Turbotax, as it does not offer support for this - find software that support form 1040NR (non resident).
  
  – Najel
  yesterday
  

  
  
  
  


• 
  
  
  

  
  1
  

  
  
  
  
  
  

  
  
  @Davislor - the urban legend is about income tax, not just any random duty on a gallon of gas.
  
  – Davor
  yesterday
  

  
  
  
  


• 
  
  
  

  
  

  
  
  
  
  
  

  
  
  @Davor Seems my comment was removed. I’ll respect that. I note that nobody who repeats that talking-point ever puts it in context. Bailey: “That’s technically true only of one kind of tax, only because most of the money most taxpayers send to the IRS every year technically counts as another kind of tax. Also, 47% was only true at the bottom of the worst recession in seventy years.” Motte: “Half of Americans pay no taxes!”
  
  – Davislor
  21 hours ago
  
  

  
  
  
  

 | 
show 2 more comments

This year is my first year in the USA. My sole earnings were an honorarium from a university for $7,500 -- reported on a 1099-MISC form in box 7.

For this, I was on-site for a few days and talked about my particular technical expertise with university staff, and joined them in a publication.

However, as I have just been unpleasantly informed by turbotax, this does not make me a poor person earning under the $12k deductible. This makes me a self-employed business and thus I have to pay about 15% taxes on these earnings.

This seems completely crazy. Have I missed something?

united-states taxes self-employment

share|improve this question

edited yesterday

A-Foreign-Scientist-2018

asked yesterday

A-Foreign-Scientist-2018A-Foreign-Scientist-2018

10114

New contributor

A-Foreign-Scientist-2018 is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

share|improve this question

edited yesterday

A-Foreign-Scientist-2018

asked yesterday

A-Foreign-Scientist-2018A-Foreign-Scientist-2018

10114

New contributor

A-Foreign-Scientist-2018 is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

share|improve this question

edited yesterday

A-Foreign-Scientist-2018

asked yesterday

A-Foreign-Scientist-2018A-Foreign-Scientist-2018

10114

New contributor

A-Foreign-Scientist-2018 is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.

asked yesterday

A-Foreign-Scientist-2018A-Foreign-Scientist-2018

10114

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asked yesterday

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2 Answers
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31

The 15% you're seeing is self-employment tax. The standard deduction still applies, and you are not paying any federal income tax. Self-employment tax pays for social security and medicare, normally employees and employers split those, the self-employed pay the full 15.3% themselves.

Self-employment tax is based on the business net profit, so any business expenses associated with this income can be used to offset income and reduce the tax liability. If you had to fly in and stay at a hotel, for example, those costs should be factored in.

In some cases, honoraria is mis-classified as Nonemployee Compensation (Box 7) instead of Other Income (Box 3). Which box is appropriate depends on the nature of your engagement, Other Income would typically not be subjected to self employment tax.

Edit: I was remembering common mis-classification issues at universities with fellowship income, not honoraria. Honoraria is sometimes mis-classified, but in your case I would guess Box 7 is proper, but could still be worth looking into further.

share|improve this answer

edited yesterday

answered yesterday

Hart COHart CO

33.3k57894

• 
  
  
  

  
  14
  

  
  
  
  
  
  

  
  
  Yes. If you were a poor person earning that amount in W2 wages, you'd have had the ~15% taken out before you even got your paycheck.
  
  – jamesqf
  yesterday
  

  
  
  
  


• 
  
  
  

  
  9
  

  
  
  
  
  
  

  
  
  @paulj: Your memory is a bit lacking. The social security tax (larger portion of FICA stops), but not at 80k, more like 128k or 130k, The medicare portion doesn't stop, and in fact goes up (see "Additional Medicate Tax"; that threshold for that to kick in is typically 200k).
  
  – Ben Voigt
  yesterday
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  @GalacticCowboy: Yes, that half won't appear on a W2 or paycheck in any shape or form, it's already been taken out (as jamesqf said). The other half does appear as social security and medicare withholding. It's all a government scam to make you think social security and medicare are only costing you half as much as actually is being taken.
  
  – Ben Voigt
  yesterday
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  @paulj Social security is a net progressive tax because the benefits received climb slower than the tax paid. That is, you buy insurance for yourself, and you pay a progressive tax to subsidize insurance for people with lower incomes. The benefits hit a cap, which is why the tax also is capped.
  
  – user71659
  yesterday
  

  
  
  
  


• 
  
  
  

  
  2
  

  
  
  
  
  
  

  
  
  @GalacticCowboy: It is, because all of it is a cost of employing the person. But only half of it counts toward one's "total compensation". That's true for self-employed as well, the "employer share" FICA taxes that they have to pay are excluded from gross income.
  
  – Ben Voigt
  yesterday
  

  
  
  
  

 | 
show 9 more comments

12

Self-employment tax is basically you covering the medicare and social security "tax" that would have been covered by your employer if you were on their payroll. The standard deduction is for income tax that you should not be subject to. It does not apply to self-employment tax.

Note that if you were an employee, you still would have paid half of that amount (7.65%) in the form of withholdings from your paycheck.

share|improve this answer

edited yesterday

Brythan

17.8k64059

answered yesterday

D StanleyD Stanley

57.8k10169176

• 
  
  
  

  
  6
  

  
  
  
  
  
  

  
  
  If you were an employee, I'm pretty sure you would have paid exactly the same, no matter how it's phrased. We have the same system here, "half paid by employer, half by employee", and that always works out to the employee paying all of it. By nature, it's not a tax on the business, but a tax that takes some of what the company spends on the employee away from the employee.
  
  – Nobody
  yesterday
  

  
  
  
  


• 
  
  
  

  
  6
  

  
  
  
  
  
  

  
  
  No, you misunderstand. Saying that the employer pays a part is just a book keeping trick. For both the employer and the employee, it's like the employee pays both parts. The employer only cares about total cost for the employee. The employee only cares about what they actually get to spend. The difference is the tax, no matter how you "divide" it between them both.
  
  – Nobody
  yesterday
  

  
  
  
  


• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  @Nobody Not true. If an employer pays an employee $100 gross, their total cost is $107.60 - the salary plus their portion of FICA/MC. If they pay a contractor $100, their total cost is $100. The government gets $15 either way.
  
  – D Stanley
  yesterday
  
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  @DStanley See en.wikipedia.org/wiki/Tax_incidence "The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. <br>[...] some economists think that the worker bears almost the entire burden of the tax because the employer passes the tax on in the form of lower wages. The tax incidence is thus said to fall on the employee."
  
  – Acccumulation
  yesterday
  

  
  
  
  


• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  @DStanley And that's one of the reasons why a contractor charges more than you'd typically pay an employee doing the same work.
  
  – Dmitry Grigoryev
  17 hours ago
  

  
  
  
  

 | 
show 4 more comments

protected by JoeTaxpayer♦ yesterday

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31

The 15% you're seeing is self-employment tax. The standard deduction still applies, and you are not paying any federal income tax. Self-employment tax pays for social security and medicare, normally employees and employers split those, the self-employed pay the full 15.3% themselves.

Self-employment tax is based on the business net profit, so any business expenses associated with this income can be used to offset income and reduce the tax liability. If you had to fly in and stay at a hotel, for example, those costs should be factored in.

In some cases, honoraria is mis-classified as Nonemployee Compensation (Box 7) instead of Other Income (Box 3). Which box is appropriate depends on the nature of your engagement, Other Income would typically not be subjected to self employment tax.

Edit: I was remembering common mis-classification issues at universities with fellowship income, not honoraria. Honoraria is sometimes mis-classified, but in your case I would guess Box 7 is proper, but could still be worth looking into further.

share|improve this answer

edited yesterday

answered yesterday

Hart COHart CO

33.3k57894

• 
  
  
  

  
  14
  

  
  
  
  
  
  

  
  
  Yes. If you were a poor person earning that amount in W2 wages, you'd have had the ~15% taken out before you even got your paycheck.
  
  – jamesqf
  yesterday
  

  
  
  
  


• 
  
  
  

  
  9
  

  
  
  
  
  
  

  
  
  @paulj: Your memory is a bit lacking. The social security tax (larger portion of FICA stops), but not at 80k, more like 128k or 130k, The medicare portion doesn't stop, and in fact goes up (see "Additional Medicate Tax"; that threshold for that to kick in is typically 200k).
  
  – Ben Voigt
  yesterday
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  @GalacticCowboy: Yes, that half won't appear on a W2 or paycheck in any shape or form, it's already been taken out (as jamesqf said). The other half does appear as social security and medicare withholding. It's all a government scam to make you think social security and medicare are only costing you half as much as actually is being taken.
  
  – Ben Voigt
  yesterday
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  @paulj Social security is a net progressive tax because the benefits received climb slower than the tax paid. That is, you buy insurance for yourself, and you pay a progressive tax to subsidize insurance for people with lower incomes. The benefits hit a cap, which is why the tax also is capped.
  
  – user71659
  yesterday
  

  
  
  
  


• 
  
  
  

  
  2
  

  
  
  
  
  
  

  
  
  @GalacticCowboy: It is, because all of it is a cost of employing the person. But only half of it counts toward one's "total compensation". That's true for self-employed as well, the "employer share" FICA taxes that they have to pay are excluded from gross income.
  
  – Ben Voigt
  yesterday
  

  
  
  
  

 | 
show 9 more comments

31

The 15% you're seeing is self-employment tax. The standard deduction still applies, and you are not paying any federal income tax. Self-employment tax pays for social security and medicare, normally employees and employers split those, the self-employed pay the full 15.3% themselves.

Self-employment tax is based on the business net profit, so any business expenses associated with this income can be used to offset income and reduce the tax liability. If you had to fly in and stay at a hotel, for example, those costs should be factored in.

In some cases, honoraria is mis-classified as Nonemployee Compensation (Box 7) instead of Other Income (Box 3). Which box is appropriate depends on the nature of your engagement, Other Income would typically not be subjected to self employment tax.

Edit: I was remembering common mis-classification issues at universities with fellowship income, not honoraria. Honoraria is sometimes mis-classified, but in your case I would guess Box 7 is proper, but could still be worth looking into further.

share|improve this answer

edited yesterday

answered yesterday

Hart COHart CO

33.3k57894

• 
  
  
  

  
  14
  

  
  
  
  
  
  

  
  
  Yes. If you were a poor person earning that amount in W2 wages, you'd have had the ~15% taken out before you even got your paycheck.
  
  – jamesqf
  yesterday
  

  
  
  
  


• 
  
  
  

  
  9
  

  
  
  
  
  
  

  
  
  @paulj: Your memory is a bit lacking. The social security tax (larger portion of FICA stops), but not at 80k, more like 128k or 130k, The medicare portion doesn't stop, and in fact goes up (see "Additional Medicate Tax"; that threshold for that to kick in is typically 200k).
  
  – Ben Voigt
  yesterday
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  @GalacticCowboy: Yes, that half won't appear on a W2 or paycheck in any shape or form, it's already been taken out (as jamesqf said). The other half does appear as social security and medicare withholding. It's all a government scam to make you think social security and medicare are only costing you half as much as actually is being taken.
  
  – Ben Voigt
  yesterday
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  @paulj Social security is a net progressive tax because the benefits received climb slower than the tax paid. That is, you buy insurance for yourself, and you pay a progressive tax to subsidize insurance for people with lower incomes. The benefits hit a cap, which is why the tax also is capped.
  
  – user71659
  yesterday
  

  
  
  
  


• 
  
  
  

  
  2
  

  
  
  
  
  
  

  
  
  @GalacticCowboy: It is, because all of it is a cost of employing the person. But only half of it counts toward one's "total compensation". That's true for self-employed as well, the "employer share" FICA taxes that they have to pay are excluded from gross income.
  
  – Ben Voigt
  yesterday
  

  
  
  
  

 | 
show 9 more comments

The 15% you're seeing is self-employment tax. The standard deduction still applies, and you are not paying any federal income tax. Self-employment tax pays for social security and medicare, normally employees and employers split those, the self-employed pay the full 15.3% themselves.

Self-employment tax is based on the business net profit, so any business expenses associated with this income can be used to offset income and reduce the tax liability. If you had to fly in and stay at a hotel, for example, those costs should be factored in.

In some cases, honoraria is mis-classified as Nonemployee Compensation (Box 7) instead of Other Income (Box 3). Which box is appropriate depends on the nature of your engagement, Other Income would typically not be subjected to self employment tax.

Edit: I was remembering common mis-classification issues at universities with fellowship income, not honoraria. Honoraria is sometimes mis-classified, but in your case I would guess Box 7 is proper, but could still be worth looking into further.

share|improve this answer

edited yesterday

answered yesterday

Hart COHart CO

33.3k57894

share|improve this answer

edited yesterday

answered yesterday

Hart COHart CO

33.3k57894

answered yesterday

Hart COHart CO

33.3k57894

answered yesterday

Hart COHart CO

33.3k57894

12

Self-employment tax is basically you covering the medicare and social security "tax" that would have been covered by your employer if you were on their payroll. The standard deduction is for income tax that you should not be subject to. It does not apply to self-employment tax.

Note that if you were an employee, you still would have paid half of that amount (7.65%) in the form of withholdings from your paycheck.

share|improve this answer

edited yesterday

Brythan

17.8k64059

answered yesterday

D StanleyD Stanley

57.8k10169176

• 
  
  
  

  
  6
  

  
  
  
  
  
  

  
  
  If you were an employee, I'm pretty sure you would have paid exactly the same, no matter how it's phrased. We have the same system here, "half paid by employer, half by employee", and that always works out to the employee paying all of it. By nature, it's not a tax on the business, but a tax that takes some of what the company spends on the employee away from the employee.
  
  – Nobody
  yesterday
  

  
  
  
  


• 
  
  
  

  
  6
  

  
  
  
  
  
  

  
  
  No, you misunderstand. Saying that the employer pays a part is just a book keeping trick. For both the employer and the employee, it's like the employee pays both parts. The employer only cares about total cost for the employee. The employee only cares about what they actually get to spend. The difference is the tax, no matter how you "divide" it between them both.
  
  – Nobody
  yesterday
  

  
  
  
  


• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  @Nobody Not true. If an employer pays an employee $100 gross, their total cost is $107.60 - the salary plus their portion of FICA/MC. If they pay a contractor $100, their total cost is $100. The government gets $15 either way.
  
  – D Stanley
  yesterday
  
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  @DStanley See en.wikipedia.org/wiki/Tax_incidence "The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. <br>[...] some economists think that the worker bears almost the entire burden of the tax because the employer passes the tax on in the form of lower wages. The tax incidence is thus said to fall on the employee."
  
  – Acccumulation
  yesterday
  

  
  
  
  


• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  @DStanley And that's one of the reasons why a contractor charges more than you'd typically pay an employee doing the same work.
  
  – Dmitry Grigoryev
  17 hours ago
  

  
  
  
  

 | 
show 4 more comments

12

Self-employment tax is basically you covering the medicare and social security "tax" that would have been covered by your employer if you were on their payroll. The standard deduction is for income tax that you should not be subject to. It does not apply to self-employment tax.

Note that if you were an employee, you still would have paid half of that amount (7.65%) in the form of withholdings from your paycheck.

share|improve this answer

edited yesterday

Brythan

17.8k64059

answered yesterday

D StanleyD Stanley

57.8k10169176

• 
  
  
  

  
  6
  

  
  
  
  
  
  

  
  
  If you were an employee, I'm pretty sure you would have paid exactly the same, no matter how it's phrased. We have the same system here, "half paid by employer, half by employee", and that always works out to the employee paying all of it. By nature, it's not a tax on the business, but a tax that takes some of what the company spends on the employee away from the employee.
  
  – Nobody
  yesterday
  

  
  
  
  


• 
  
  
  

  
  6
  

  
  
  
  
  
  

  
  
  No, you misunderstand. Saying that the employer pays a part is just a book keeping trick. For both the employer and the employee, it's like the employee pays both parts. The employer only cares about total cost for the employee. The employee only cares about what they actually get to spend. The difference is the tax, no matter how you "divide" it between them both.
  
  – Nobody
  yesterday
  

  
  
  
  


• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  @Nobody Not true. If an employer pays an employee $100 gross, their total cost is $107.60 - the salary plus their portion of FICA/MC. If they pay a contractor $100, their total cost is $100. The government gets $15 either way.
  
  – D Stanley
  yesterday
  
  

  
  
  
  


• 
  
  
  

  
  5
  

  
  
  
  
  
  

  
  
  @DStanley See en.wikipedia.org/wiki/Tax_incidence "The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. <br>[...] some economists think that the worker bears almost the entire burden of the tax because the employer passes the tax on in the form of lower wages. The tax incidence is thus said to fall on the employee."
  
  – Acccumulation
  yesterday
  

  
  
  
  


• 
  
  
  

  
  3
  

  
  
  
  
  
  

  
  
  @DStanley And that's one of the reasons why a contractor charges more than you'd typically pay an employee doing the same work.
  
  – Dmitry Grigoryev
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Self-employment tax is basically you covering the medicare and social security "tax" that would have been covered by your employer if you were on their payroll. The standard deduction is for income tax that you should not be subject to. It does not apply to self-employment tax.

Note that if you were an employee, you still would have paid half of that amount (7.65%) in the form of withholdings from your paycheck.

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edited yesterday

Brythan

17.8k64059

answered yesterday

D StanleyD Stanley

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share|improve this answer

edited yesterday

Brythan

17.8k64059

answered yesterday

D StanleyD Stanley

57.8k10169176

edited yesterday

Brythan

17.8k64059

edited yesterday

Brythan

17.8k64059

answered yesterday

D StanleyD Stanley

57.8k10169176

answered yesterday

D StanleyD Stanley

57.8k10169176