Saturday, August 20, 2011

Ouch! Will I have to pay 48.3% in tax on my Adsense and Amazon income?

As I mentioned in my last post, I decided to change the withholding on my paychecks so I spread some of my tax burden throughout the year.  I thought maybe I should look into getting taxes withheld from my side income.  While doing that research, I discovered some more bad news.  If you make more than $400 from "self-employment" such as Adsense or Amazon, you not only have to pay your tax rate, but you also have to pay an additional 15.3% for Social Security and Medicare because they consider this self-employment. I had thought if I set aside 25% of any income I made I should have my taxes covered. Then I also remembered that there has not been any state taxes withheld either, and that tax rate is 8%. So I added up all these taxes and came up with 48.3%...

Federal tax: 25%
State tax: 8%
Self employment tax: 15.3%
Total: 48.3%

I know tax brackets are set up that you pay 10% on your first $17,000 (for married filing jointly) and 15% on income up to $69,000 and then 25% is the rest.  So I don't know if they consider extra income the first part of your income or the last.  But, I'm assuming because there was no taxes taken out at all, then it would get taxed at the highest rate which in our case is 25%.  The state tax is set up in a similar way - you pay a smaller percentage on your income to a certain point. So maybe it won't be 48.3%, but I'm worried it really could be this bad.  It kind of makes me think it's not worth it if almost half of the extra money I make has to be given back in the form of taxes.

Do any other bloggers who make money from their blogs know the answer to this?

No comments:

Post a Comment