As we move to the end of the calendar year, here are some things to think about to save yourself headaches when tax time rolls around…
Like many Americans you may have felt the income pinch in the last year, or you may be doing freelance work to get ready for a job change. If you’ve been paid for work that is outside of a regular W2 job, you have ‘Extra Income’.
Do you have to pay taxes on Extra Income? Yes, definitely.
Are taxes typically withheld from side income? Sometimes, but not always.
If taxes aren’t taken out of your check, do you still owe them? Yes!
There is a tax impact from Extra Income:
- If you are a part-time employee who has taxes taken out from your check, at tax time you will receive a W-2 form, showing the taxes that have come out of that income.
- You may be considered an Independent Contractor if you earned more than $600 from a job, and no taxes were taken out of your earnings. You will then receive a 1099-MISC form at tax time, showing that the IRS knows that you made that money. And the IRS wants the money due to them.
In other words, if you have a job that has not had taxes already withheld on that income, then you are obligated to make those tax payments yourself. As in, write a check to the IRS on a quarterly or annual basis. Tip: It’s a good idea to put a percentage of the earnings from that job into an account and save it for paying taxes, or you may not have the money when tax time rolls around!
If you are an independent contractor, you will also need to pay your own social security tax – which is 15%! The good news is that it is 15% of net (after expenses are deducted from you gross earnings.)
To see how much you will actually make on an hourly basis after paying taxes on a non-tax-withholding job, you will need to know your tax bracket. Add the extra income to your regular income – will it put you into a higher income tax bracket? If so, it might be good to weigh the extra hours and income against the burden of paying more taxes. Working with a qualified tax professional can help you weigh the pros and cons of your extra income jobs.
For help with these and other tax issues, contact Litchfield County, Connecticut tax attorney Martha Miller, admitted to practice in CT, NY, and before the US Tax Court, at 860-435-4666. We accept state tax problems for CT, MA and NY, and we accept U.S. federal tax problems from any location in the world.