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04-13-2017 03:47 PM
I file married/joint tax return with my husband. Last year I didn't make much income with my freelance business, but this year, I was planning to branch out more until I heard from my HR Tax Preparer that my earning were subject to 53 percent in taxes! He said:
15.3 in Social Security
28 percent in Fed
9.3 in State.
So if I earn say, 25k, I will pay 53 percent of that in taxes! Can someone explain to me this high amount? Is this based on my husband's salary (again, file jointly) this year? Are there any suggestions on what to do for this tax year except quit freelancing?
04-13-2017 04:03 PM
Welcome to the H&R Block community.
You may have misunderstood what your tax professional was telling you or he or she may not have explained it thoroughly. You will not actually pay 53% in taxes. Here's the way it actually works:
FEDERAL INCOME TAX: Imposed on all income from all sources. However, if you're in the 28% bracket that doesn't actually mean 28%. The tax is imposed at a graduated rate, so the first so much of your income is taxed at about 10%, the second so much at 15%, the third so much at 25%, and so on and the last little bit of income is taxed at 28%. Whether or not you will actually owe any federal income tax is based on the outcome of your entire tax return.
STATE INCOME TAX: Works about the same way as federal, except the calculation may vary depending on your state.
SELF-EMPLOYMENT TAX: This is the 15.3% tax on your self-employment income from freelancing. It's a combination of the social security tax & Medicare tax that would be withheld from your paycheck if you were an employee. As an employee your employer normally pays 1/2 of this tax, but as a freelancer or an independent contractor you are responsible for all 15.3% of the tax. This is a flat amount and can only be reduced by withholdings and refundable credits. You get a deduction for 1/2 of the self-employment tax on page 1 of the 1040 as well.
So with all of that taken into account, you will probably only pay about 30%-35% in tax, and perhaps not even that much if you're eligible for some good credits & deductions to reduce the tax. A tax calculator such as the one on the H&R Block website or the one on the IRS website can help you figure out what you can expect your tax to be next year.
If you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)
04-13-2017 05:44 PM
First of all, thank you so much LouisH for a terrific explanation. I must say, it made me feel just a bit better, and I have printed out your response to show my preparer tomorrow when we meet.
Since I have your ear, if I hope to make approximately 30k next year on this freelance business in my second year, is it required to pay taxes quarterly, and if so, how do I know how much to send? Do I just assume 33 or so percent? I want as much info as I can get, and because your advice was so straight forward, thought I would start with you!