[mjsomme]

My daughter is a 20-year-old full-time college student and as such can still be claimed on my taxes as a dependent. On her own taxes she checks the box that she can be and has been filed as a dependent to someone else's taxes.

In past years all of her part-time employment has been recorded as W-2 income and therefore any federal & state tax that was deducted from her pay was returned to her as a refund at tax filing time.

In 2006 she worked for an investment firm that paid her as a contractor, not an employee, did not deduct any taxes from her pay and then reported her income on a 1099-MISC box 7 ($2100).

I was assuming that this would be wash with taxes because the income is well below the level where she would be responsible for taxes. There would obviously be no refund but there would not be any taxes to pay either.

I'm being informed by my tax software and other research that I have done that she must file a schedule C or C-EZ and pay about $300 self-employment tax on this income. This doesn't seem right somehow.

Is she hosed because of the way the firm pays her? Or, am I missing something obvious?

[Fr_Chuck]

Ok, when you are an independent contractor, you are paid just like she was in business for herself. There are very spefic rules as to qualifing for that, With that also everything she does is a business write off, anything she buys for the job and job expenses.

Now as a self employed person she does not have income tax or social security paid out of it. That is why a contract worker needs to be paid higher than a normal worker since the company is not paying unemployment, social security or any tax on the employee.

But normally when you work, you pay 7.5 percent social secuity and the company matches that amount. When you are a contractor you have to pay the 15 percent for self employment

[AtlantaTaxExpert]

Actually, the percentages are 7.65% and 15.3%.

Other than that, Fr Chuck covered it rather well.

[mjsomme]

Thanks to both Fr_Chuck and AtlantaTaxExpert for answering. Please excuse my delay. I was called out of town unexpectedly.

I have another question. If my daughter has to file as a business, can she deduct her mileage to and from the job? I think that would be the only business expense she would be eligible for.

Thanks for your time.

Mike

[AtlantaTaxExpert]

Her travel from home to work and back is considered commuting expenses, which are NEVER deductible.

If she used her car doing the day to run errands for her business or to see clients, then THAT mileage is deductible at 44 cent a mile..