Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
I've got a good one for all you Tax buffs out there:

My wife participated in 2 medical drug studies for which she was paid for her time. These are studies where they give you a generic of a drug to make sure it works as well as the brand name version (no, I didn't know they did that either)

Anyway, they did not take out any taxes and told her to report the earnings as self employed earnings. The little form they gave her with her 1099-MISC said that the self employ tax is a flat tax around 15% (15.3% to be exact).

So I'm typing away in TurboTax and it asks about other income. Since she did receive other income and it wasn't on a W-2, I clicked 'Yes'. It then asks you to describe the business you earned the income from and then asks for income and expense numbers for it.

This part was easy since there were no expenses just the income from the 2 studies.

Before I entered this 1099-MISC, our federal tax due was $376. After I entered in the 1099-MISC (and related info) the federal tax due jumps to $693.

Since my wife thought that was a high amount, I decided to play with the numbers.

If you subtract the highest federal tax due (including the 1099-MISC) $693 from the tax due without the 1099-MISC $376, you get a difference of $317. According to Turbotax the self employment tax for the amount she earned was $159. So I subtracted the $159 from $317 and get $158.

To my untrained eyes, it seems TurboTax is (virtually) doubling the self employed tax and adding that to our federal tax due.

I have:
- Checked the Sch C and SE forms show the correct amounts
- Contacted TurboTax who determined that the 1099-MISC section was correct so the problem must be somewhere else.

Does what I've said make sense? Does anyone have any experience with this or what direction you can point me in?

Because of attachments, we must mail our return so my wife wants to pay the tax we owe before we included the 1099-MISC and include a note to the IRS that there appears to be a problem with the tax program and are paying on what we are sure we owe. I'm not so sure that's a good idea. What do you think?

Thanks!
JT
Print the post Back To Top
No. of Recommendations: 0
You pay (1) self-employment tax on the earnings AND (2) are taxed on the same income at your highest marginal tax rate. Does it work now? You get an adjustment (deduction) on page 1 of the 1040 for 50% of the SE tax, too.

BP
Print the post Back To Top
No. of Recommendations: 1
If you subtract the highest federal tax due (including the 1099-MISC) $693 from the tax due without the 1099-MISC $376, you get a difference of $317. According to Turbotax the self employment tax for the amount she earned was $159. So I subtracted the $159 from $317 and get $158.

To my untrained eyes, it seems TurboTax is (virtually) doubling the self employed tax and adding that to our federal tax due.



What this tells me is you are in a 15% income bracket and your wife received somewhere around $1125 for her participation. On that she owes income tax as well as self employment tax. The self employment tax is just the social security and medicare portion.

Pay the whole thing today.
Print the post Back To Top
No. of Recommendations: 0
Many thanks for the advice! Of course, you're dead on. I figured out what the deal was while I was on hold to the IRS. The lady that came on confirmed what you've said.

Thanks!
Print the post Back To Top
No. of Recommendations: 3
My wife participated in 2 medical drug studies for which she was paid for her time. These are studies where they give you a generic of a drug to make sure it works as well as the brand name version (no, I didn't know they did that either)

Anyway, they did not take out any taxes and told her to report the earnings as self employed earnings.


She's in the business of being a drug study guniea pig? Do they do this for recreational drugs? Where do I sign up?

I don't give a flying fig what the payors said or what box they put it in on the 1099-MISC, it sounds like line 21 miscellaneous income not subject to self-employment tax to me. Unless, of course, she really is a professional guniea pig.

Phil
Print the post Back To Top
No. of Recommendations: 0
My wife participated in 2 medical drug studies for which she was paid for her time. These are studies where they give you a generic of a drug to make sure it works as well as the brand name version (no, I didn't know they did that either)

Anyway, they did not take out any taxes and told her to report the earnings as self employed earnings.


She's in the business of being a drug study guniea pig? Do they do this for recreational drugs? Where do I sign up?

I don't give a flying fig what the payors said or what box they put it in on the 1099-MISC, it sounds like line 21 miscellaneous income not subject to self-employment tax to me. Unless, of course, she really is a professional guniea pig.


I agree with Phil. Line 21 miscellaneous income. If you DO report it as Schedule C/self-employment income, I would deduct the cost of getting to and from the test site(s) and any other costs directly related to the studies and not reimbursed.

Ira
Print the post Back To Top
No. of Recommendations: 0
As I was reading this thread, I also was wondering if the wife of the OP was "in the business of..."

I too would have considered the income miscellaneous, line 21 income. No SE tax due. I'd file an amended return if I were you.

Arleen
Print the post Back To Top
Advertisement