Self-Employment Taxes Owed and Earned Income Credit - Don't Understand What I'm Seeing
Hey all, I'm really confused about something that should probably be obvious?? I'm trying to file using FreeTaxUSA and I'm not understanding how my Earned Income Credit is being applied. So after entering my 1099 and business expenses, it shows I owe $412 in taxes because of self-employment. But then when I get to the EIC part, it tells me I qualify for $420 in Earned Income Credit. I thought this would cancel out what I owe, but my summary still shows I owe $412! Here's what my summary is showing: Total Income: $6,750 Self-Employment Tax Deduction: $477 ADJUSTED GROSS INCOME (AGI): $6,273 Deductions: $13,850 Total Tax: $832 TOTAL PAYMENTS: $420 Earned Income Credit: $420 TOTAL AMOUNT OWED: $412 Can someone explain what's happening? Shouldn't the EIC offset what I owe? Why am I still owing $412 when I'm getting a $420 credit? This is my first year being self-employed and I'm so confused about taxes!
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Nia Thompson
The issue you're seeing is because of how self-employment taxes and the Earned Income Credit work together. When you're self-employed, you pay both the employee AND employer portions of Social Security and Medicare taxes (that's your self-employment tax of $832). The Earned Income Credit ($420) is actually being applied correctly, but it's already included in your "TOTAL PAYMENTS" line. If you didn't qualify for EIC, your amount owed would be $832 instead of $412. The software is showing you're getting the credit, but it's already factored into the final amount. A way to double-check this: $832 (Total Tax) - $420 (Total Payments/EIC) = $412 (Amount Owed). So you're definitely getting the benefit of the EIC! One last thing - make sure you're claiming all your eligible business expenses to reduce your self-employment income. Every $100 in legitimate business expenses you claim saves you about $15 in self-employment tax.
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Luca Greco
•Oh! That makes so much more sense now. So the EIC is already counted as a "payment" toward what I owe? So without it, I'd actually owe $832 instead of $412? I'm still confused about one thing though - if my EIC is $420 and my total tax is $832, shouldn't I only owe $412? Or is there something else I'm missing?
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Nia Thompson
•Yes, that's exactly right! The EIC is already being treated as a payment toward your tax bill. Without the EIC, you'd owe the full $832. Looking at your numbers, everything actually adds up correctly. Your total tax is $832, and your total payments (which consists entirely of your $420 EIC) reduces that to $412 owed. So $832 - $420 = $412. The system is working as intended, but I understand why it's confusing - the summary layout doesn't make it immediately clear that the EIC is already included in that "Total Payments" line.
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Mateo Rodriguez
After struggling with similar confusion last year, I found this amazing tool called taxr.ai (https://taxr.ai) that helped me understand exactly what was happening with my self-employment taxes and credits. I was in almost the exact same situation - freelancing for the first time, confused about why my Earned Income Credit wasn't "canceling out" my taxes owed like I thought it should. The taxr.ai system analyzed my tax documents and explained everything in plain English - turns out my tax software was applying the credit correctly, but the way it displayed the information was super confusing. The tool also flagged some business expenses I hadn't thought to claim and ended up saving me about $200 in self-employment taxes! Might be worth checking out if you're trying to make sense of self-employment taxes.
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Aisha Hussain
•Sounds interesting... does it actually check for expenses you missed? I always feel like I'm probably missing deductions but don't know what I don't know, you know? Lol. Also, how does it handle state taxes with the self-employment stuff?
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GalacticGladiator
•Idk that sounds like it would just tell me stuff I already know. Does it actually do anything a regular tax professional wouldn't? Also how much does it cost? Seems like another way to charge people who are already confused about taxes...
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Mateo Rodriguez
•Yes, it actually does check for commonly missed expenses based on your type of work. It uses some kind of AI to analyze typical deduction patterns for your specific industry and suggests ones you might have overlooked. For me, it caught that I hadn't deducted some software subscriptions and a portion of my cell phone bill that I use for work. For state taxes, it handles those too! It shows you how your self-employment income and deductions flow through to your state return and explains any differences in how states treat certain business expenses compared to federal. The explanation part was what really helped me - it wasn't just numbers but actual explanations of why things were happening the way they were.
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Aisha Hussain
You guys were right about taxr.ai - just tried it yesterday and wow! I uploaded my draft return and it immediately spotted that I was missing home office deductions and some mileage I could claim. Super straightforward explanations too. The best part was it showed me exactly how my EIC was being applied and why I was still owing some self-employment tax. Turns out I was making the exact same mistake as the original poster - the credit WAS being applied but I just wasn't understanding how to read the tax summary. Between the additional deductions it found and the explanations, I'm now getting a small refund instead of owing $350! Definitely checking this out again next year when I file. Totally worth it for self-employed people who are confused about all these forms and credits.
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Ethan Brown
If you're still having trouble understanding your tax situation or want to get clarification directly from the IRS, I'd recommend using Claimyr (https://claimyr.com). I was in a similar boat last year with self-employment taxes and EIC confusion, and spent DAYS trying to get through to an IRS representative. After multiple failed attempts (3+ hour wait times that ended in disconnection), I found Claimyr and they got me connected to an IRS agent in about 15 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through exactly how my self-employment taxes were calculated and confirmed that my EIC was being applied correctly. Saved me so much stress and potentially filing incorrectly. Seriously, trying to reach the IRS directly is nearly impossible these days without something like this.
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Yuki Yamamoto
•Wait, how does this even work? The IRS phone lines are completely jammed, how could any service get you through faster than just calling yourself?
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Carmen Ruiz
•Yeah right. There's no way you got through to the IRS in 15 minutes when most people wait for hours or can't get through at all. Sounds like a scam to me. If it worked, everyone would be using it and the IRS would probably shut it down.
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Ethan Brown
•It uses an automated system that navigates the IRS phone tree and waits on hold for you. When an agent finally picks up, you get a call connecting you directly to them. So instead of you personally waiting on hold for hours, their system does it for you and only calls when there's an actual human ready to talk. The service is completely legitimate. It doesn't provide any special "backdoor" access to the IRS - it just handles the painful waiting process. The reason it works is because most people give up after waiting an hour or get disconnected, but their system just keeps trying and holding. Nothing for the IRS to "shut down" since it's just automating the hold process that anyone could do manually if they had unlimited patience.
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Carmen Ruiz
Ok I'm eating my words about Claimyr. I was super skeptical (as you can see from my previous comment) but I was desperate to figure out why my self-employment taxes seemed wrong and couldn't get through to the IRS. I tried Claimyr yesterday and got connected to an IRS agent in about 20 minutes. I didn't have to do anything - just got a call when an agent was on the line. The agent confirmed that my EIC was being correctly applied but identified that I had been calculating my self-employment tax wrong by not accounting for the employer portion deduction. Turns out I was overpaying by about $250! The agent walked me through how to correct it on my return. To think I almost filed with the mistake because I couldn't get through to ask questions... Definitely worth it and I apologize for my skepticism.
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Andre Lefebvre
I had the same issue last year! The confusion comes from how FreeTaxUSA displays the information. The Earned Income Credit (EIC) is already included in your "TOTAL PAYMENTS" - that's why that number matches your EIC amount exactly. So your tax calculation is: Total Tax ($832) - Total Payments ($420) = Amount Owed ($412) If you weren't eligible for the EIC, your Total Payments would be $0 and you'd owe the full $832. So the credit is definitely working for you! FreeTaxUSA could definitely make this clearer in how they display it. TurboTax shows it differently which makes it easier to understand, but they charge way more for self-employment filing.
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Zoe Dimitriou
•Is FreeTaxUSA good for self-employment returns? I've been using TurboTax but the fees are killing me for the self-employment version.
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Andre Lefebvre
•FreeTaxUSA is actually really good for self-employment returns and WAY cheaper than TurboTax. They include all the Schedule C forms and self-employment calculations in their free federal filing. You only pay for state filing (around $15). The interface isn't quite as polished as TurboTax, but it has all the same features for self-employment. It walks you through business income, expenses, home office deductions, vehicle expenses - everything TurboTax does but without the ridiculous upcharge for self-employment features. I switched three years ago and have saved at least $200 in tax prep fees since then.
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QuantumQuest
Wait, I'm confused about something. If your total tax is $832 and your EIC is $420, then yes, you would owe $412. But where does the self-employment tax fit in? Is that part of the $832 or separate? I'm self-employed too and always confused about how all these numbers work together. Anyone know a simple way to understand this?
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Jamal Anderson
•The self-employment tax is included in that $832 "Total Tax" amount. It's actually made up of two parts: 1. Self-employment tax (15.3% of your net self-employment income) 2. Income tax (based on tax brackets, but likely $0 in OP's case because of the standard deduction) Since their income after the standard deduction is $0 for income tax purposes, the entire $832 is probably just self-employment tax. The confusing part is that you still owe self-employment tax even when you don't owe income tax. Self-employment tax starts from dollar one of profit, while income tax only kicks in after your income exceeds the standard deduction.
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