Why do I pay Self-Employment tax AND Federal Taxes as a 1099 contractor? Aren't Social Security & Medicare already included?

The reason you're paying both isn't because you're being double-taxed - it's actually closing a gap in how employment taxes work. Here's the simple version: When you're a W-2 employee, your employer pays half of your Social Security and Medicare taxes (7.65%), and you pay the other half through payroll withholding. You never see the employer portion on your paystub because it doesn't come out of your check. As a 1099 contractor, you're effectively both the employer AND employee. The Self-Employment tax (15.3%) is basically you paying both halves of those FICA taxes. Your federal income tax is completely separate - it doesn't include Social Security or Medicare contributions at all. The good news is you can deduct half of your self-employment tax when calculating your income tax, which helps offset the extra burden a little.

I was in your exact situation last year - totally blindsided by how much I owed! After doing a bunch of research, I found this amazing tool called taxr.ai (https://taxr.ai) that saved me so much headache with my 1099 work. It analyzes all your income sources and explains exactly what taxes you'll owe and why. What really helped me was how it broke down the self-employment tax vs regular income tax and showed me all the deductions I was missing. Before using it, I was saving way too little and would've been screwed again this year.

Just wanted to update after trying taxr.ai that the previous commenter recommended. Seriously a game-changer for understanding my contractor taxes! I was in the same boat as you - totally confused about why I was paying so much in taxes. The tool broke everything down and showed me that I was missing TONS of deductions. It identified about $4,800 in legitimate business expenses I could deduct that I had no idea about. The best part was seeing exactly how much to set aside each month for taxes based on my actual income instead of just guessing. My effective tax rate dropped from around 42% to 31% after all the proper deductions. Wish I'd found this before filing last year!

If you're struggling with tax questions like this, you're definitely not alone. I spent HOURS on hold with the IRS trying to get clarity on self-employment taxes last year. Complete waste of time until I found Claimyr (https://claimyr.com). They have this service that gets you through to an actual IRS agent in minutes instead of waiting for hours. I was super skeptical at first, but you can see how it works in their demo video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained everything about self-employment taxes and confirmed I could deduct my home office and a bunch of other expenses I wasn't sure about. Saved me a ton in taxes and the peace of mind was worth it.

I need to eat my words about Claimyr being a scam. After struggling with a complex question about self-employment deductions that no one could answer clearly, I was desperate enough to try it. It actually worked. Got connected to an IRS agent in about 22 minutes (instead of the 3+ hours I spent last time trying on my own). The agent walked me through exactly how to handle my specific situation with 1099 income mixed with W-2 income. For what it's worth, they also confirmed what others have said about the self-employment tax - it's covering both the employee and employer portions of Social Security and Medicare. The agent also pointed out some deductions I was missing that will save me about $2,100 this year.

Don't forget that you can deduct 50% of your self-employment tax on your federal tax return! That helps offset the pain a little bit. Also, track EVERYTHING for your 1099 work - mileage, home office, supplies, software, portion of internet and phone, etc. All those deductions add up and can significantly lower your taxable income. When I first started contracting, my effective tax rate was around 40% but after properly tracking deductions it's now closer to 30%. Don't be afraid to get aggressive (but legal) with your business deductions!

ugh this whole system is so rigged against independent workers! big corporations get all these loopholes but we get stuck with this "self employment" tax that's just a fancy way of saying "we're taxing you extra for not having a traditional job" 🙄

Quick tip - if you expect to owe more than $1000 in taxes for the year, you need to make estimated quarterly tax payments to avoid underpayment penalties. I learned this the hard way and got hit with penalties my first year contracting. Easiest way is to use the IRS Direct Pay system and select "estimated tax" as the reason. You'll need to calculate roughly what you'll owe each quarter based on your income. Quarters are due April 15, June 15, Sept 15, and Jan 15 of the following year (weird schedule, I know).

The confusion is totally understandable! Think of it this way - when you're a W-2 employee, you see 7.65% deducted from your paycheck for Social Security and Medicare, but your employer is secretly paying another 7.65% that you never see. So the total is actually 15.3%, you just don't realize it. As a 1099 contractor, there's no employer to pay that hidden half, so YOU have to pay the full 15.3% as self-employment tax. Your federal income tax is completely separate - it's based on your income bracket and has nothing to do with Social Security/Medicare. The bright side? You can deduct half of that self-employment tax (the "employer" portion you're paying) when calculating your federal income tax. Plus, all those business expenses you can write off as a contractor often make up for the extra tax burden. Just make sure you're tracking everything - home office, mileage, equipment, software subscriptions, etc. At $78k with mixed W-2 and 1099 income, 44% savings rate does seem high. You might want to run the numbers more precisely or consult with a tax professional to make sure you're not over-saving (though better safe than sorry after last year's surprise!).