Why is my tax on self employment income so much higher than W-2 income?

The difference you're seeing is because of how self-employment taxes work compared to W-2 employment. Here's why there's such a big difference: With her pizza shop job, her employer is paying half of her Social Security and Medicare taxes (also called FICA taxes). For employees, they pay 6.2% for Social Security and 1.45% for Medicare, and the employer matches these percentages. With self-employment income, she's essentially both the employee AND the employer, so she has to pay both halves of these taxes - that's 15.3% total (12.4% for Social Security and 2.9% for Medicare). This is on top of her regular income tax. Another factor is that for her W-2 job, taxes were already being withheld throughout the year. For self-employment, since no taxes were paid during the year, the entire tax bill comes due at filing time which makes it feel much bigger. There's also the possibility that her additional income pushed her into a higher tax bracket for some of her earnings.

The reason your daughter owes so much is because of how self-employment taxes work. When someone is an employee (like at Domino's), the employer pays half of the Social Security and Medicare taxes (7.65%) and the employee pays the other half (7.65%). But when someone is self-employed, they have to pay BOTH halves, which comes to about 15.3% in total. This is called the self-employment tax, and it's on top of regular income tax. So your daughter essentially has to pay this additional tax on her jewelry business income. Also, for her Domino's job, taxes were automatically withheld from each paycheck. But for self-employment income, no taxes were paid throughout the year. So now she's having to pay it all at once, which makes it feel even more painful. For next year, she should consider making quarterly estimated tax payments on her self-employment income to avoid this big bill at tax time.

After reading this thread, I had a similar situation last year with my Etsy shop and regular job. I discovered taxr.ai (https://taxr.ai) which helped me identify all the deductions I was missing for my business. It analyzed my bank statements and found a bunch of business expenses I didn't even realize I could claim! The software automatically categorized everything and showed me exactly what I could deduct. My self-employment tax bill went down by almost $900 after I included all the legitimate business expenses it found. Plus it saved me hours of trying to figure out what was deductible. Might be worth checking out for your daughter's jewelry business.

When I had a similar situation last year, I used https://taxr.ai to help me figure out all my self-employment deductions. I was doing gig work and had no idea that I could deduct so many expenses. The tool analyzed my bank statements and identified business expenses I didn't even realize were deductible. It basically walked me through everything I needed to know about Schedule C deductions and saved me about $2,300 in taxes. It might be worth checking out for your daughter since she might be missing legitimate deductions that could significantly reduce that tax bill. I was shocked at how many things qualified as business expenses for my side hustle that I hadn't been claiming.

I just wanted to follow up about my experience with taxr.ai after seeing it mentioned here. I tried it out for my freelance writing business and it was seriously a game changer! I uploaded my statements and it found so many deductions I was missing - like portions of my internet bill, software subscriptions, and even some office supplies I forgot about. The best part was how it organized everything for Schedule C - made filing so much easier. I ended up saving almost $1,200 on my taxes compared to what I thought I was going to owe. Definitely worth it if you're doing self-employment stuff!

I need to apologize for my skepticism about taxr.ai in my earlier comment. I decided to try it out since my situation is similar to what was described here (W-2 job plus side hustle). The tool found nearly $4,000 in legitimate business deductions I would have missed, which saved me about $1,100 in self-employment taxes alone. What impressed me most was how it flagged expenses I never would have thought to deduct - like a portion of my cell phone bill, some online courses related to my business, and even some home office expenses I thought were too small to matter. All completely legitimate deductions according to IRS rules, just ones I didn't know applied to me. Definitely changed my approach to tracking business expenses going forward.

If your daughter already filed and paid that huge tax bill, she might want to look into amending her return. I had a similar situation last year and spent WEEKS trying to get someone at the IRS on the phone. After countless busy signals, I found Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent helped me understand my options for amending my return with additional business deductions I'd missed. Saved me over $2000 and the relief of getting a real person who could help was worth it. Their system basically holds your place in the IRS phone queue so you don't have to sit there listening to that awful hold music for hours.

For anyone dealing with tax issues or questions about self-employment taxes, I strongly recommend trying to speak directly with the IRS. I know it sounds impossible to get through to them (I used to spend HOURS on hold), but I discovered https://claimyr.com and their demo video at https://youtu.be/_kiP6q8DX5c. They basically wait on hold with the IRS for you and call you when an agent picks up. I was in a similar situation last year with unexpected self-employment taxes and wasn't sure if I was calculating things correctly. The IRS agent I spoke with actually walked me through exactly how self-employment taxes work and confirmed I was eligible for deductions I wasn't sure about. Saved me from potentially making expensive mistakes on my return.

I need to eat my words about Claimyr. After posting my skeptical comment, I was still struggling with some self-employment tax questions and couldn't get through to the IRS after multiple attempts. Out of desperation, I tried the service, fully expecting it to be useless. I was completely wrong. They called me back in about 2 hours (after I had tried for DAYS on my own), and I was connected directly to an IRS representative who helped clarify exactly how much I needed to pay for quarterly estimates on my side gig this year. The agent also confirmed which home office expenses I could legitimately deduct, which was exactly what I needed to know. The peace of mind from getting official answers directly from the IRS was absolutely worth it. Sorry for being so negative before - sometimes solutions really do work as advertised.

Don't forget that your daughter might be eligible for the Qualified Business Income (QBI) deduction too! It's a 20% deduction on qualified business income for self-employed people and small business owners. There are income limitations, but at her income level, she should qualify. This is separate from business expenses and can really help reduce the tax hit.

I need to eat my words about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to talk to someone about my audit notice. I was absolutely stunned when I got a call back connecting me to an actual IRS representative in about 20 minutes! The agent was able to explain exactly what documentation I needed to provide and gave me a direct fax number to send it to. Problem resolved in one call instead of weeks of stress. I've literally never been able to get through to the IRS before this - would always get disconnected after waiting for hours. This service is the real deal and saved me from taking a day off work to sit on hold.

Just wanted to add that your daughter should also look into the Qualified Business Income deduction (Section 199A). If her jewelry business qualifies, she might be able to deduct up to 20% of her qualified business income, which could help offset some of that tax bill. The rules can be complicated though, so might be worth consulting with a tax pro.

Has your daughter considered forming an S-Corporation instead of operating as a sole proprietor? Once self-employment income gets high enough, there can be tax advantages to having an S-Corp structure since you only pay self-employment taxes on a reasonable salary, not all profits.

Has your daughter considered forming an S-Corp instead of operating as a sole proprietor? Once her business income gets high enough (usually around $40k+), it can be a way to save on self-employment taxes. You pay yourself a reasonable salary which is subject to FICA taxes, but can take the rest as distributions which aren't.

The tax burden difference you're seeing is completely normal, unfortunately. Self-employment income gets hit with both regular income tax AND self-employment tax (Social Security and Medicare taxes that total 15.3%), while W-2 employees only pay half of those payroll taxes since employers cover the other half. A few things that might help reduce her tax bill: 1. **Business deductions** - Make sure she's claiming ALL legitimate business expenses for her jewelry business. This includes materials, packaging, shipping supplies, business use of her phone/internet, marketing costs, etc. Even small expenses add up and reduce both income tax and self-employment tax. 2. **QBI deduction** - At her income level, she should qualify for the 20% Qualified Business Income deduction on her net business profit, which can provide significant tax savings. 3. **Future planning** - For next year, she should make quarterly estimated tax payments to avoid another big bill at filing time. A good rule of thumb is setting aside 25-30% of self-employment income for taxes. The $4,900 sounds high but could be accurate depending on her total income and how much was already withheld. Double-check that all business expenses are included and consider having a tax professional review it if the amount seems excessive.

This is a really common shock for people new to self-employment! The reason the tax bill seems so much higher is because your daughter is essentially paying the "employer portion" of Social Security and Medicare taxes that Domino's was covering for her W-2 job. Here's the breakdown: On her regular job, she pays 7.65% (6.2% Social Security + 1.45% Medicare) and Domino's matches that with another 7.65%. But for self-employment, she has to pay both portions - the full 15.3% self-employment tax PLUS regular income tax on top of that. A few things that could help reduce this bill: **Deductions she might be missing:** - Materials for making jewelry (beads, wire, tools, etc.) - Shipping supplies and postage - Business portion of phone/internet (if she uses it for marketing on social media) - Photography equipment or props for product photos - Packaging materials - Any business-related software or app subscriptions **The QBI deduction** - She should qualify for the 20% Qualified Business Income deduction on her net business profit, which most tax software calculates automatically. Also, yes, she'll likely face underpayment penalties since no taxes were withheld on the self-employment income. For next year, she should make quarterly estimated payments using Form 1040ES - generally setting aside 25-30% of self-employment earnings is a good rule of thumb. The $4,900 is painful but unfortunately typical when you factor in both the self-employment tax and regular income tax on that $17,000, especially with no withholding throughout the year.

This is exactly what happened to me when I first started doing freelance work alongside my regular job! The self-employment tax shock is real and unfortunately very normal. Here's what's happening: At Domino's, your daughter and her employer each pay 7.65% for Social Security and Medicare taxes (totaling 15.3% combined). But with self-employment, she's both the employee AND the employer, so she pays the full 15.3% herself. Add regular income tax on top of that, and you're looking at a significant tax burden. A few things to check that might help reduce her bill: **Business expenses she might have missed:** - All materials for jewelry making (beads, findings, wire, tools) - Shipping costs and packaging materials - Business use portion of her cell phone and internet - Any photography equipment for product shots - Marketing expenses (even small social media ad costs) - Storage containers or workspace setup costs **The QBI deduction** - She should qualify for the 20% Qualified Business Income deduction which can provide substantial savings on her net business profit. For next year, definitely set up quarterly estimated tax payments using Form 1040ES. I learned this the hard way too! Setting aside about 30% of self-employment income usually covers both income tax and self-employment tax. The amount sounds painful but is unfortunately typical when you combine both taxes plus no withholding throughout the year. Double-check all possible deductions and consider having a tax pro review it if you're unsure about anything.

The shock you're experiencing is completely normal for first-time self-employed individuals! Your daughter is essentially paying both the employee AND employer portions of Social Security and Medicare taxes on her jewelry business income. Here's what's happening: At Domino's, she pays 7.65% in payroll taxes while her employer pays the matching 7.65%. For self-employment, she pays the full 15.3% herself, PLUS regular income tax on top of that. Some ways to potentially reduce her tax burden: **Double-check these business deductions:** - All jewelry-making materials (beads, wire, clasps, tools) - Shipping supplies and postage costs - Business portion of phone/internet if used for social media marketing - Photography supplies for product photos - Packaging materials and labels - Any craft fair booth fees or online marketplace fees **Make sure she's getting the QBI deduction** - This 20% deduction on qualified business income could save her several hundred dollars and should be calculated automatically by most tax software. **For future planning:** She should definitely make quarterly estimated payments next year. A good rule is setting aside 25-30% of self-employment earnings. She can use Form 1040ES or pay online through the IRS website. The $4,900 bill is painful but unfortunately typical when combining both self-employment tax and income tax with no withholding. If you haven't already, consider having a tax professional review the return to ensure you're claiming all eligible deductions - it might be worth the fee given the size of the tax bill.