I used to be 'working poor'

[left-of-center2012]

Now I'm 'retired poor' - on S.S. and Section 8.

[Erich Bloodaxe BSN]

1. I'm still poor, but just started working again as a 1099 type, not an employee.

And I'm a bit confused by the tax situation. Since I've always had the employer withhold taxes before, I guess I vaguely assumed there were parts specially earmarked as 'SSN' or 'Medicare' or whatever. So now that I have to cover that myself, I was expecting that I'd be paying double on those, but that as far as my regular income tax went, my total for 2015 is still way below the standard deduction for a single person. So I'm not sure if I'll owe anything or not, or whether next year, if I make the assumption that I'll get as much 1099 work and pass the standard deduction and almost maybe even hit the poverty line, whether I need to start filing quarterly estimated taxes.

Congrats on retiring, though.

[discntnt_irny_srcsm]

2. FYI

For 1099 wages the amount for social security is 12.4% and another 2.9% for medicare.

For the 2015 tax year, filing due by 15 April 2016, the personal exemption is $4000 and the standard deduction for single is $6300. All income over that sum, $10,300, is subject to federal tax. For example if you had w-2 wages of $20,000, 1099 wages of $10,000, rental income profits of $2,000 and investment profits of $500:

>> You owe 15.3% on the $10,000 in 1099 wages = $1,530 (the portion for the w-2 wages of $20,000, should have been withheld and paid by your employer. You'll should plan to pay the remaining $1,530)
>> Your total income is $32,500. Subtract the exemption and standard deduction that leaves $22,200 subject to federal tax. (The federal tax on the whole amount is about $2,700. The portion from w-2 wages should have been withheld and paid by your employer. You'll need to pay the rest. Check your last pay stub for the amounts already paid.)

Just a thought; if you're already collecting on your social security and your only income is from 1099 wages, I believe any additional wages you earn will never increase the amount of social security you receive. If that's the case and your client is willing, forming a private corp and taking your earnings as business profits rather than wages will save you the 15.3%. All that could change based on state and local tax laws. YMMV so check with a tax pro.

[Travis_0004]

3. I agree with everything but the last part

Just a thought; if you're already collecting on your social security and your only income is from 1099 wages, I believe any additional wages you earn will never increase the amount of social security you receive. If that's the case and your client is willing, forming a private corp and taking your earnings as business profits rather than wages will save you the 15.3%. All that could change based on state and local tax laws. YMMV so check with a tax pro.

Not quite. Social security is paid based on your highest 35 years of employement. If you are retired and workking, and you earn enough to change the calculation, the will recalculate your benefit amount. They then pay the increase retroactive to January the year after you earned the money.

So you pay your taxes in April 2016, but were receiving social security checks for Jan, Feb, March and April before you paid your taxes. Since social security underpaid you in 2016 (since they did not yet know your 2015 earnings, you will get a small bonus check.


Also, forming a private corp, and taking your earnings all as business profits instead of wages is very illegal, on a federal level, and I can't imagine it being legal on a state level. Depending on what you do, some of your money can be marked as a return on investment (I'm thinking S corp), which does not pay OASDI taxes. (OASDI is just short for social security)

Example. I work as an accountant for a small business that am one of the owners. We could pay an accountant 20.00 an hour to do my job. Since I do it myself, I clock in (for tax purposes.). If I work 20 hours, I should be paid 400 dollars, but since I own the company and get a share of the profits, I get 600 dollars. 400 is reported as wages, 200 is reported as a return on investment, to avoid OASDI taxes. This is legal, but the problem is you don't want to underpay yourself. If I tried to claim that an accountant would work for 10.00 an hour, I could get in trouble with the IRS. All this is done on my taxes, the company doesn't need to know or care how you do this math, but generally you should have an investment with the company to do this. If you were hired for a job as a 1099, without some sort of investment yourself, and they pay is 15.00 an hour, one would assume the market rate for that position is 15.00 an hour. You can't claim its 10.00 and put 5.00 an hour to a return on investment,

[discntnt_irny_srcsm]

5. Thanks, I defer to professional advice

My misconception is based on being told that business profits (such as from an S corp) only need to be filed as wages if you are paid based on hours on the client's clock at the client's location or if you bill the client based on an hourly rate.

Thanks for the correction.

[Erich Bloodaxe BSN]

6. I'm not the retired one here, so no, I'm not collecting SS yet.

And my total income for 2015 is probably going to be around $3500, all 1099.

If, however, I keep getting this 1099 all year next year, I could potentially actually hit somewhere close to 12k for 2016.

[discntnt_irny_srcsm]

7. Aside from the SS and medicare...

...it looks like no tax this year and very little next year.

[Erich Bloodaxe BSN]

8. That was the part I wasn't sure about.

So I do still need to pay the 15.whatever% for the SS and Medicare, correct? And I should probably make an estimated payment by January 15th of 2016 for those for the money I made in the 4th quarter of 2015?

[discntnt_irny_srcsm]

10. I really don't want to give you bad advice

The best idea is to check with an accountant.
My recollection is that anything earned as wages is subject to the 15.3%.
When I paid myself and family members from my S corp I used the online payroll feature from my bank. There is apparently some break point where you need to file the withholdings monthly as opposed to quarterly. I never new what made the difference or how much or if it had to do with how many employees were paid on the payroll. I think the form # was 940 or 941.

Sorry I'm not more help.
Good luck.

[Erich Bloodaxe BSN]

11. You've actually been very good help.

At worst, I pay ahead something I don't need to, and get a nice refund come April. At best, I actually pay what I need to, and it keeps counting towards SS/Medicare when I do hit retirement age. So thanks

[discntnt_irny_srcsm]

12. You're welcome

Have a nice night.

[Melurkyoulongtime]

4. Welcome to the group

left-of-center2012! You're welcome here anytime!

[w0nderer]

9. welcome to the group

Left-of-center2012. Unhappy for the need to be here, but happy you are here.

[left-of-center2012]

13. Thanks for the welcome

Much appreciated.