Reimbursements & SE Tax

June --

I have been a Consultant for 10 years.

Saw your comments on expenses going on a 1099. Yes you can deduct from your income tax but must pay SS and Medicare! 15.3% If you want to be fully reimbursed you have to ask for 18.1% more! Which I do. Pays for the extra SS/medicare tax on the extra amount being reimbursed!

What say?
Jerry


Jerry --

I say get the extra 18% if you can but your reasoning is incorrect.

You do not pay self-employment [SE] tax on gross income but on net self-employed income. Therefor you do not pay SE tax on reimbursements included on a 1099. This is how it works:

$2,500 REIMBURSEMENTS NOT ON 1099
10,000 gross income
1,000 non-reimbursed expenses get subtracted from your gross income
2,500 reimbursed expenses do NOT get subtracted from your gross income
---------
9,000 net income on which you pay SE tax


$2,500 REIMBURSEMENTS ARE INCLUDED ON 1099
12,500 gross income
1,000 non-reimbursed expenses get subtracted from your gross income
2,500 reimbursed expenses get subtracted from your gross income
---------
9,000 net income on which you pay SE tax

In states where there is a gross receipts tax read my posts on reimbursements and talk with your tax pro about special recordkeeping.

-- June