Confusion at Tax Paid Percentage

Forum|Forum|10 months ago
May 28, 2025
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Hi, I have two income sources, as a 1099 contractor and as a W-2 employee, but on a limited basis (event/seasonal work). My tax bill was larger than I expected, amounting to about 20% of my AGI. Why is this so high? I make less than $40,000. Thank you.

Ask the Experts - W4 - May 2025

Cindy4 12

Being a 1099 contractor means you are self-employed by IRS definition. You pay 15.3% FICA tax - Social Security and Medicare - in addition to income tax. You only pay 7.65% FICA as an employee because your employer covers the other half, and that is automatically withheld from each paycheck, so you don't really notice it. We have some great resources here at our Self-Employment Tax Hub that may help you going forward. You can either start paying quarterly estimated taxes based on your projected profit, or you can adjust your W-2 withholding to cover the additional tax burden.

As an example: If you have $20,000 profit for the year your self-employment tax would be calculated on schedule SE as 20,000 x .9235 = 18,470 x .153 = 2,825.91 plus your overall income tax rate, this will be based on your overall taxable income. So if it's, say, 12%, 20,000 x .12 = 2,400. The total tax generated by the self-employed income would be $5,225.91. This is only on the self-employment income, not the W-2 income.

@KD416 Many people are caught off guard by this when they start side jobs.

Hope this helps!

Cindy

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KD416Author

Thank you, Cindy. I have one more follow up. The bulk of my earnings are from the 1099 contractor role. Does this impact my income tax rate?

RSUMan

The short answer is no. Your income tax rates are not affected by the fact that you get paid as a 1099 contractor. Income tax is imposed on Taxable Income. So regardless if you start with W-2 wages or Form 1099 payments, you arrive at Taxable Income and then the tax rates are the same.
What surprises many 1099 contarctors is the Self Employment tax burden which was described above.