My wife & I are self employed Last year I made $23k and was taxed at 18.6% and this year $31k and 36.6% why?

Question

Is there some kind of income threshold that puts us into a higher tax bracket. Now neither of us qualify for federal grants whereas last year they allowed us to actually go to school.

Answer 1

I assume the numbers you gives was your joint income, and that you filed a joint return both years.

For self employment you'll pay around 14% of your net for self employment taxes for social security and medicare.  

Income tax rates go up as you make more money.  Making $23K you would pay very little income tax, and would pay a higher % on $31K.  18.6% for local, state and federal income tax and self employment tax would sound about right on the $23K.

But something is seriously wrong with your numbers for this year - it shouldn't be anywhere near 36.6%.  On $31K on a joint return your federal income tax would be around $1353 which is around 4%, plus around $4380 or around 14% for self employment taxes - that comes to around 18.5%.  No state and local area are going to charge another 19.1% on $31K.  Something is wrong with your calculations.

Answer 2

Out of 18.6% tax, about 15% is social security and medicare taxes. SE tax rate is 15.3%.

Read more about self employed tax filing: http://taxipay.blogspot.com/2008/04/tax-...

Answer 3

The education credits are the only difference I can see from your information.  Credits reduce taxes owed.  

However I would have both years reviewed by another preparer because this difference is so large it deserves a closer look.

Answer 4

No matter how much you give there will always be others out to take more...