If the 1099-misc amount issued in box 7, nonemployment compensation. The amount will be added to your earned income And the amount will also be taxed the self-employment tax.
so lets say, your income was 16,000 and you received a 1099-misc with the amount of $1000 in box 7.
1st) your earned income for 2011 will be $17000 before income tax.
2nd) your $1000 from the 1099-misc will also have to pay the self-employment tax, since it will need to be attached to a Sch C.
and how do you figure that out? well you take 92.35% of 1000 and you get $924
then multiply the $924 by 13.3% and you get $123, the total self employment tax. which will be added to your income tax.
Finally, you multiply $123 by 57.51% and you get $71, the deduction part of the self-employee tax that you will subtract from your $17000 earned income originally, making your AGI 16,929 before your income tax.
Basically, if you didn't have the 1099-misc with an income of $16000 you would have to pay $1,109 in taxes
with the 1099-misc, $1,367. The amount will vary based on your income bracket of course, but it's safe to say $1000 issued as a 1099-misc will cause you about $200+ in additional taxes . This sample is single, 16k income.
Last edited by Thinkdiesel; Jan 21, 2012 at 1:38 am