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1) Did I choose the right schedules for the moonlighting earnings?

Yes. Good work.

Is there any chance that my medical license fee can be considered a deductible expense? (I assumed not, but if it COULD be, there is another potential $550 I could take off my earnings.)

Yes, your periodic license fee is deductible. But I would say that you need to prorate it between the moonlighting and your employee job. I'd suggest that your income from the two jobs would be a good basis for proration. The amount attributible to your residency job is an employee business expense - a miscellaneous itemized deduction subject to the 2% of AGI floor. The amount attributable to the ER work is a business expense deducted on schedule C (C-EZ in your case).

Can anyone help explain to me how to figure out just what this means in terms of the true tax rate owed on the moonlighting money?

It's confusing because you are paying two different taxes on these earnings. The social security taxes are 15.3% of your net earnings (technically 15.3% times 92.35% or about 14.1%). But that is only because your W2 wages when added to your self-employment income are less than the maximum social security taxable income.

If your W2 wages were over the SS max ($80,400 for 2001) then you'd only pay the medicare portion of the tax - 2.9%. As your combined W2/self-employment income goes above the limit, the effective rate goes from 14.1% to 2.9%. Confused yet?

Now there's income taxes. If you consider your moonlighting income as the last dollars you earn, then they are taxed at your marginal rate (technically your marginal rate times .9235 again - to reflect the deduction for 1/2 of the social security taxes). So if you're in the 27.5% bracket, that makes your income tax on this money effectively 25.4%.

Of course, I haven't taken the deduction for your state income taxes into account yet. And I'm not going to - partly because things will get relly messy and partly because I don't know what state you're in.

So we get to your other main question:
2) What is the ACTUAL rate of tax I am paying on this $2867.56?

The quick and dirty answer (because it uses numbers most people have heard and it also slightly overestimates the tax - avoiding nasty surprises on April 15) is that it's Social Security, plus Income, plus your state tax rates. Assuming a 10% state rate, that's 15.3 + 27.5 + 10 or about 53%.

Which gets me to the top-of-my-head number I usually tell my clients who are already working a regular job. Put aside about 1/2 of your net income from independent contractor work for taxes.

--Peter
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