Freelance income tax question

[Smallpotatoes]

Now that I'm doing freelance work, I have to make estimated quarterly tax payments.

Can anyone recommend a good online calculator to figure out how much I need to pay?

With the IRS, do I pay income tax and Social Security (or self-employment tax) separately or are they lumped together?

 

[MileHigh]

The IRS website should be able to guide you on how to figure those things out.

 

[The Big Ragu]

Now that I'm doing freelance work, I have to make estimated quarterly tax payments.

Can anyone recommend a good online calculator to figure out how much I need to pay?

With the IRS, do I pay income tax and Social Security (or self-employment tax) separately or are they lumped together?

You just make one payment, but you are on the hook for tax on any income you earn plus the self-employment / FICA tax, which are social security and medicare taxes. Your income tax will be based on how much you earn. The FICA taxes are 15.3 percent if you don't earn more than $200K - -a bit higher if you do. You basically have to cover the employer and the employee contributions of FICA yourself.

As for how much you need to pay, you need to estimate your income for the year. In order to avoid a penalty, you need to pay at least as much as you paid in taxes for the previous year, or if your income goes down, you need to have paid at least 90 percent of what you will end up owing.

 

[wicked]

I never made quarterly payments. I thought they were optional. I had a savings account on the side where I put a quarter or a third of each check. I was living at home so I could afford that high of a "withholding" rate, and I ended the year with a surplus.

 

[Smallpotatoes]

You just make one payment, but you are on the hook for tax on any income you earn plus the self-employment / FICA tax, which are social security and medicare taxes. Your income tax will be based on how much you earn. The FICA taxes are 15.3 percent if you don't earn more than $200K - -a bit higher if you do. You basically have to cover the employer and the employee contributions of FICA yourself.

As for how much you need to pay, you need to estimate your income for the year. In order to avoid a penalty, you need to pay at least as much as you paid in taxes for the previous year, or if your income goes down, you need to have paid at least 90 percent of what you will end up owing.

With the one payment, how do they know which part goes toward Social Security/Medicare?

 

[Slacker]

I never made quarterly payments. I thought they were optional. I had a savings account on the side where I put a quarter or a third of each check. I was living at home so I could afford that high of a "withholding" rate, and I ended the year with a surplus.

Same here. I paid it off when I filed my tax return the following April, and IRS never came back on it. ... YMMV?

 

[The Big Ragu]

With the one payment, how do they know which part goes toward Social Security/Medicare?

When you do your tax return in April, you pay just one amount. You don't do separate returns and separate checks for taxes on different types of income, capital gains, FICA, etc. You calculate one all-inclusive number on the return. It's your Federal tax liability.

And you are supposed to have sent quarterly payments that are 100 percent of what you paid the previous year or 90 percent of what you end up owing in April (whichever is smaller). The breakdown between income, cap gains, FICA doesn't matter. That will get determined on your tax return.

 

[wicked]

I didn't know quarterly payments were mandatory. Interesting.

 

[The Big Ragu]

I didn't know quarterly payments were mandatory. Interesting.

Yeah. You're supposed to pay as you go. There are penalties for underpayment. That holds, too, if you aren't self-employed, but you don't have your employer withhold enough.

Most people just make quarterly payments that add up to 100 percent of their previous year's taxes to avoid the penalty.

 

[playthrough]

I seem to remember paying a penalty for not making quarterly payments. Though I got my ass kicked for so many years, maybe it just all runs together.

 

[Danwriter]

If you're new to freelancing and you have more than three or four clients, get an accountant who is familiar with freelance tax situations. It's all about deductions. (Or at least it was, until the new tax law and its higher standard deduction kicked in.)

 

[Smallpotatoes]

Could Quick Books be helpful?