I'm active duty military stationed in Hawaii. My home of record is Florida. So I pay no state taxes. But I have started a second job as an independent contractor. Which means for the income from the second job I have to pay Federal self employment tax as well as Hawaii state income tax and GET tax at least quarterly in the form of estimated taxes. I have no idea how to calculate this correctly/accurately. (Especially if I include deductions such as a home office as a %age of my rental costs.)
Where do I start?
For state income tax and GET is my tax bracket determined only by the 1099 income whereas for my federal income tax is my tax bracket determined by both the 1099 and military income?
Ok ... if this just started in 2022 then estimates are not required if you can use the safe harbor option and pay in 100% of the 2021 tax liability thru withholding ... for HI your 2021 tax liability was zero thus your estimates required is zero.
Once you file the 2022 return the program will help you compute the 2023 estimates.
If your 2022 withholding will not be enough then you can increase them until the end of the year to make it up. Of course this will only save you from an underpayment penalty, you will still owe the taxes. Use the estimate of 20% of gross SE income or 30% of the net SE income for making estimates or just saving enough to pay the tax bill next year.
If you are new to being self employed, are not incorporated or in a partnership and are acting as your own bookkeeper and tax preparer you need to get educated ....
If you have net self employment income of $400 or more you have to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-NEC for some of your income but you need to report all your income. So you need to keep your own good records. Here is some reading material……
IRS information on Self Employment….
Publication 334, Tax Guide for Small Business
Publication 535 Business Expenses
Home Office Expenses … Business Use of the Home
Publication 463 Travel, Gift, and Car Expenses
Publication 946 … Depreciation
There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Self Employed return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C. You pay 15.3% for 2017 SE tax on 92.35% of your Net Profit greater than $400. The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare. So you get social security credit for it when you retire. You do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040. The SE tax is already included in your tax due or reduced your refund. It is on the 1040 line 57. The SE tax is in addition to your regular income tax on the net profit.
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2017 SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.
You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
- 2. You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your current year’s tax return, or
100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
To prepare estimates for next year, You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.
OR Go to….
Federal Taxes or Personal (H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button
How does my side job affect my taxes?
You're considered self-employed—even if it’s just something you do on the side, like drive for Uber, babysit, or blog.
Your taxes are handled differently than when you're an employee of a company.
As a self-employed individual you:
- Will pay self-employment tax (because income tax and Social Security aren’t deducted from your pay)
- Will get a 1099-MISC, 1099-NEC, or 1099-K (unless you only accept cash or personal checks)
- File a Schedule C, Form 1040 (this is how you report business expense or loss of income)
- Can deduct money you spent on work-related expenses (like mileage, home office expenses, and mobile phone use)
- Can estimate the taxes that are due and make quarterly estimated tax payments during the year
Get started by entering your income from self-employment. We'll handle the rest, from creating the forms you need to reviewing work-related expenses that can help reduce your taxes.
What is the 2nd source of income? I ask, because it matters. Since HI does not have a "sales tax" per-se, they have a GET tax. (General Excise Tax, for those reading that don't know what GET stands for.) The tax rate depends on the business. The tax rate is 0.15% for Insurance Commission, 0.5% for Wholesaling, Manufacturing, Producing, Wholesale Services, and Use Tax on Imports For Resale, and 4% for all others. More than likely, you're at 4% for "all others".
Remember, you have to file/pay the GET tax quarterly too. The TTX program does not "do" quarterly filings/payments or anything. See https://tax.hawaii.gov/geninfo/get/ to get more information on this.
For federal taxes, if you send the IRS 20% of your gross income each quarter, then come tax filing time you'll be fine. I've been doing this for almost 20 years, and at filing time I'm always well within $1000 of my tax liability. So I don't worry about any underpayment penalties. That 20% does include the additional 15.3% self-employment tax too. When you file your federal return, all the business deductions you're allowed to take will reduce your taxable business income - usually by quite a bit. Thus, sending the IRS 20% of your *gross* business income will be just fine.
For Hawaii, they don't have a sales tax "per-se". Instead, you pay a General Excise Tax (GET) on the gross business income.What the rate is, depends on the type of business. The tax rate is 0.15% for Insurance Commission, 0.5% for Wholesaling, Manufacturing, Producing, Wholesale Services, and Use Tax on Imports For Resale, and 4% for all others. For more details, see https://files.hawaii.gov/tax/legal/taxfacts/tf2015-37-1.pdf
For state income tax, which is separate from GET, the tax rate for 2022 runs from 1.4% to 11%, depending on your income. See https://www.tax-rates.org/hawaii/income-tax to get an idea of what you can expect to pay the state, based on your projected business income.
Note also that depending on what county you're in, you can also pay up to an additional 4% give or take, to that county.
For a non-resident starting a business in HI, I generally recommend you seek local professional help for that first year so that you get things set up and done correctly. Doing it wrong can (and will) cost you dearly down the road. Makes the cost of professional help for that first year well worth it. Especially in HI, as it's the highest taxing state in the nation when you combine GET with the state income tax.
My wife ran a daycare business when I was stationed at Hickam. After paying all the taxes and licensing fees, it was not worth it.
That ranges anywhere from 1.4% to a high of 11% for the 2022 tax year. See the FAQ at https://www.tax-rates.org/hawaii/income-tax. This FAQ does include the GET tax rate for the different income brackets.