Question from a reader: “I am a retired school teacher receiving a pension from the State of Illinois. Last year I taught a one week class for a research facility and was paid $2200. I also chaperoned a trip for students and was paid $600. No taxes were withheld in either case. I do not run my own business. These were one time situations that did not repeat. Both organizations recorded the income on line 7 – not line 3 – of 1099-Misc and the taxes on that income have almost doubled my taxes owed from $2600 to $4900. That just not seem right or fair. Is this truly where that money should be reported. I have always honestly paid my taxes but this seems outrageous. Neither situation provided the opportunity for any deductions so am I really stuck with this kind of tax increase for two one time only opportunities. I would not argue about paying a fair share on this $2800 but this seems way out of line. ”
My answer is that the way they reported the income was as if you were an independent contractor. That means that you need to file a Schedule C and you will be taxed on both sides of social security and half of self-employment tax regardless of what expenses you could come up with on the income.
It sounds like the extra money could also have pushed you into either a higher tax bracket or the higher portion of the bracket you are currently in. If you are receiving social security as well, that might cause some of that to be taxable and that could also account for the increase in taxes – which doesn’t quite match the income and often seems like an excessive taxing. That sometimes happens.
It isn’t fair, I agree, but that is something to take up with Congress since they approve the laws.
The workaround for the future would be to put aside a third or so of any money that you make as an honorarium and either pay it as quarterly taxes and even pay you a little more to cover any taxes if that would help.
For what it is worth, that happens to a lot of people and sometimes as the expression goes, it is what it is.
One last thing would be to go through the software you are using or double check your hand calculations one more time and make sure that it is only being added once just in case you may have answered an interview question incorrectly and it might have entered something incorrectly.
Hope that helps though that probably isn’t what you were expecting to hear.
April 18 2009
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Kim Isaac Greenblatt
Retired Teacher Taxed