Consulting work may be subject to self-employment tax

— -- Need help with your taxes? USATODAY.com will publish a reader's question and the answer from a member of the American Institute of Certified Public Accountants (AICPA) every weekday until April 15. Today's question:

Q: My wife did some consulting work for an organization last year and they paid her for her time to the tune of $2300. The organization sent her a 1099-MISC showing the $2300 but as I entered that income into my tax preparation software I discovered that I now have to pay a $315 business tax because the government assumes that if you do work for someone that does not employ you and they pay you, that you must be a business. I would like to know if there is a way to avoid having to claim business status and avoid the business tax.

Answer from AICPA member Connie Brezik: A person who is self-employed is subject to self-employment tax, which provides Social Security and Medicare benefits.

If you were paid as an employee, you would pay your share of these taxes (Social Security at 6.2% and Medicare at 1.45%) and the employer would pay the same amount.

When you are paid as contract labor, you pay both the employer and employee share for a total of 15.3% tax on the self-employment income.

You are allowed a deduction for 50% of the self-employment tax which is 7.65% so the net result should equate to an overall tax rate of 14.13% on the $2300 income.

To learn more about self-employment issues, the Internal Revenue Service provides:

Topic 554: Self–Employment Tax

Self-Employed Individuals

Distinguishing Between Self-Employed Individuals and Independent Contractors

Filing Requirements for Self-Employed Individuals

Publications and Forms for the Self-Employed

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