Imagine my surprise! An unexpected IRS tax refund.

[MineralMan]

My wife and I are self-employed. Our income is adequate, but not more than that, and often marginally not adequate. I just finally filed my 2010 income tax forms. As usual, we were not able to pay the full amount of our estimated taxes, according to my best guess about our actual income for 2010, which I never know for sure until the end of the year. My guess about that income was very close, but my tax estimate was not close. So, we filed an extension in April this year, like we've done so many times in the past, planning to pay the modest penalty for underpayment of our estimated taxes.

Well...when I finally did the taxes, I was surprised to learn that the taxes were considerably lower than I had guessed. A change in how taxable income for Social Security and Medicare payments is calculated meant that our payments this year were drastically reduced from the usual amount. This was primarily due to a difference in how our private, individual health insurance costs were handled. That, and the $800 credit for Making Work Pay reduced our taxes to the point that not only had we paid enough in estimated tax payments, but that we're getting a $1000 refund. Very handy, that refund.

We still paid income taxes and Self-employment tax, but not as much as my original estimate was. Measures introduced by President Obama and passed by Congress gave us a break I wasn't expecting. I'm not sure what bills produced that result, but I'm very glad for it. What that means is that there's an additional $1000 that will be going back into the economy, and quickly. A nice little stimulus.

Thanks, President Obama! Good job!

[sinkingfeeling]

1. Good for you!

[MineralMan]

2. Yes. I wonder how many other people had a similar experience

this year. I suspect it was many, especially among the self-employed. That change in how health insurance costs were handled, along with the Making Work Pay credit, must have resulted in a number of unexpected refunds. Our case is not untypical of self-employed people. It's a special case, and the health insurance costs have always been a real issue.

[TheWraith]

14. I did.

Partially employed for 2010, partially unemployed. I expected a small refund, and got a much better one. It helped keep me above water the rest of the spring until work picked up.

[Uben]

3. I had a similar surprise.....

....A $5000+ refund! I knew I was probably sending in too much on my estimated quarterly payments calculated by my CPA. I was expecting to get something back, but $5K? Cha-ching!

But, my quarterlies this year are so low, I know they are gonna hit me hard come tax time. That's why that $5K went into savings.

We are retired, but not yet old enough (56 and 60) for Medicare. With a cancer diagnosis 8 yrs ago, our health insurance premiums are $25K/yr! Who figures a cost like that in when they are planning to retire? It takes a big chunk, about 25%, of our income, but who ya gonna call? We could drop coverage for six months and go for the high-risk federal pool, but I don't know if it would be that much cheaper, and we just can't risk going without coverage lest there is a recurrence. They got us either way.

[MineralMan]

7. Yes. Health insurance is a huge, huge cost these days.

In 2010, half the year I was on an individual private health insurance policy, as is my wife. Now, I receive Medicare, which started halfway through 2010. My wife, who still has a long time to go, is paying $900/mo. for health insurance. She can't switch to another policy, due to pre-existing conditions. At least not until 2014, when we'll revisit that.

The self-employed understand the true cost of health insurance. We pay the whole thing ourselves...with no employer contribution. Same with SS taxes. It's quite shocking to people just entering self-employment, I'm sure. I've been self-employed since 1974. Sometimes, I regret making that choice, but the freedom involved in it is a good thing, nevertheless.

[DrunkenBoat]

4. Social security self-employment taxes? That would be about 4.4% of

your income, I believe. With the recent stimulus cut, I mean.

[MineralMan]

5. No, not even close.

15.3% is the correct number, plus an additional amount for Medicare. That is on the net income figure on your Schedule C. This year, they calculated it after the health insurance costs were deducted. That's new.

Look at a Schedule SE. You'll see the numbers.

[DrunkenBoat]

8. I meant with the recent stimulus cut in SS taxes. My impression was the cut was 2% each

for employee & employer.

and the SS portion of fica taxes is 12.4% (6.2% for employee, same for employer) i believe. the rest is medicare.

http://www.ssa.gov/oact/progdata/taxRates.html

[MineralMan]

9. That doesn't apply to the 2010 tax year,

which is what I'm talking about. I'll deal with 2011 taxes in 2012.

[Liberal_in_LA]

6. Sweet! n/t

[dems_rightnow]

10. Change to taxable portions of social security?

I am unaware of this change. What is it?

[MineralMan]

12. No. The way the way the self-employment tax is calculated

has been changed. Now, health insurance costs are deducted from gross profit on the Schedule C. This results in a lower amount of self-employment tax due. That's the change.

[dems_rightnow]

13. Health Insurance isn't deductible on Schedule C

They ARE deductible on line 29 of the 1040, but they have been for some time. That deduction isn't a product of this administration. Obama did allow you to deduct the premium for children up to age 27, which was a change.s

If you deducted them on Schedule C, it's an error. But don't take my word for it.

http://www.irs.gov/publications/p535/ch06.html#en_US_2010_publink1000208843

[dems_rightnow]

15. I see that I misread your post, but

Health insurance costs aren't deductible against the self-employment tax, either.

[RebelOne]

11. Yes, I was surprised to receive a $962 refund for 2010.

I have always had to pay. I was laid off in 2010, but I also received 6 months severance pay. I was also collecting social security and after my severance pay was exhausted, I filed for unemployment. Fortunately, I had the taxes withheld on my unemployment. Well, I thought I would still have to pay because I was receiving all that money. But to my surprise, I received a refund, which I have not gotten for the past 10 years. And, since I live in Georgia, I also had to file a state tax return. I received a refund of over $300 on that.

[Land Shark]

16. Next year your taxes go UP: Making work pay credit phases out...

The only group, thus, to have net taxes raised in the recent deal on taxes were the working poor, on account of the FICA cuts being less than the phase out in 2011 of the Making Work Pay credit.

[Broderick]

17. Donate it back to send a message that we are willing to give more

and help this country, rather than be grifters of greed like the the 1 percent.