I retired last year and have an opportunity to pick up some consulting work but I wanted to make sure I understood what my tax would be before negotiating my rate.

I file as MFJ and after deduction I am right at the limit for long term capital gains being 0% (~97k). My understanding is I would owe payroll tax (14.3%) and these earnings would be part of my taxes in the 12% income bracket, but it would also push some of my qualified dividends out of the 0% bracket into the 15% bracket. (I assume this income would stack before the qualified dividends)

If I have this all correct each 1099 dollar I am paid, it would effectively add $0.41 to my taxes. Is that right or am I not calculating something correctly.

stonksock said:

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I retired last year and have an opportunity to pick up some consulting work but I wanted to make sure I understood what my tax would be before negotiating my rate.

I file as MFJ and after deduction I am right at the limit for long term capital gains being 0% (~97k). My understanding is I would owe payroll tax (14.3%) and these earnings would be part of my taxes in the 12% income bracket, but it would also push some of my qualified dividends out of the 0% bracket into the 15% bracket. (I assume this income would stack before the qualified dividends)

If I have this all correct each 1099 dollar I am paid, it would effectively add $0.41 to my taxes. Is that right or am I not calculating something correctly.

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Not to nitpick, but the self-employment tax would be 15.3% of 92.35% of your 1099 net income. (If you also have W-2 income still, the arithmetic changes. but you said you retired, so probably no W-2 income). You get to deduct half of the SE tax paid.

If I am understanding you right, without the 1099 income, you are around $97k in taxable income. If so, then the added 1099 income would be mostly in the 22% bracket (or higher, depending on the amount of 1099 income) rather than the 12% bracket.

Thanks for the reply.

My understanding is 1099 income would apply before qualified dividends. So my qualified dividends which are currently taxed mostly at 0% would be pushed into the 15% bracket. And thus the income earn from the gig would fill up more of the 12% bracket that the qualified dividends are currently filling up

you are generally correct in your thinking.

Keep in mind - you will be able to deduct expenses you have not deducted before:
- any business related expense (including your cell phone, internet, business mileage, etc.)
- health insurance (self employed health insurance deduction)

Depending on the nature of the business, those could add up.

Also, you now have to opportunity to contribute to a SEP IRA. You can put up to a quarter of your net 1099 income into that and it will all be tax deductible.

from an overall perspective; some tax exempt income could be helpful here.

Honestly, this type of question is perfect for ChatGPT to answer. Get a general answer first, then give it some more specifics and then double check with a different AI source.

I did a business tax return this year and ChatGPT was incredibly helpful at understanding how everything flowed from the spreadsheets to the tax forms. Way better than turbotax. Next year I probably wont even buy turbotax business because ChatGPT was so good.

Username doesn't check out! Jk love the name actually! Enjoy retirement, you've earned it!

stonksock said:

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Thanks for the reply.

My understanding is 1099 income would apply before qualified dividends. So my qualified dividends which are currently taxed mostly at 0% would be pushed into the 15% bracket. And thus the income earn from the gig would fill up more of the 12% bracket that the qualified dividends are currently filling up

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Assuming the 1099 income exceeds your qualified dividends, part of the 1099 income replaces the amount of qualified dividend income that is currently taxed at a 0% rate and that amount will be taxed at 12%, any excess 1099 income above that will be taxed at 22% (or above if your income is high enough). Then the net 1099 income taxed at the self-employment rate of 15.3%. I think we are thinking alike, maybe saying it a little differently, lol.

I have seen this sort of thing many dozens of times where someone retires and their former employer "hires" them back as a 1099 person. The health insurance, vacation, retirement benefits, etc. disappear when they do.

When that first started happening, many of them wouldn't let me know it had happened. Often, their gross pay as a 1099 person was as much, or more, than when they were a W-2 person. It was not a good day when they found out what they owed because of the self-employment tax and no income tax withholding. At least you are thinking ahead!

Thanks for all the replies... But yes I have about 50k in qualified dividends per year so around 75k of non qualified dividends, interest income and Roth conversions. The 75k enjoys the standard deduction so I still have a bit of room before the 22% bracket wouldn't hit until around 45k of 1099 income but 45k of 1099 income would push more of my qualified dividends into the 15% bracket.