Paying Estimated Taxes

[Landa]

I'm currently working as both an independent contractor, and working a part-time wage job. 
For my contractor work, I've been paying the quarterly 15.3% SE taxes to both NY state (as a NY resident) and the US govt... with the understanding that I will later be able to deduct half of these SE taxes on my regular tax return. 

My question is: am I doing this correctly?

[KochuK]

Hi Landa,

Appreciate your proactiveness on your tax year 2021 tax reporting, which is fast approaching early months of 2022.

For your contract work, you can deduct business expenses directly associated with making that income. Hence the "net income" may be much smaller than the gross contract income. The "net income" is subject to both income tax (depending on your marginal tax bracket of filing status) and self employment tax. 

You are correct that half of self employment tax is deductible (Schedule 1, line 14) to reduce the Adjusted Gross Income. And TurboTax will take care of that calculation.

Whatever you have submitted as estimated tax payments toward tax year 2021 serves as deposit/payment toward your 2021 tax liability.

I recommend that you use TurboTax Online 2021 program (should be available by end of December 2021) to project and adjust your final estimated tax payment  due  1/18/2022.

Hope the above helps. Thank you.

[VolvoGirl]

You know you can only deduct 1/2 the Federal SE tax on the federal return.   It's all included on your personal 1040 tax return.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit (If it is 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.  

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 23.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 14 which flows to 1040 line 10a.  Turbo Tax automatically calculates the SE Tax and Adjustment.

The 50% SE tax deduction only reduces your taxable income and regular income tax.  It will not reduce your schedule C Net Profit or reduce the total self employment tax.  

For 2020  Schedule C Net Profit or Loss goes to 1040 Schedule 1 line 3.  Then the total on schedule 1 line 9 goes to 1040 line 8.

If you also have W2 income, you have to break out the Social Security and Medicare taxes. Only the Social Security part maxes out.  Turbo Tax does it automatically for you.

The SE tax includes what you already paid in from your W2s so your schedule SE tax will only be the difference up to the max amount of $8,537.40 for social security. The max income for social security for 2020 is $137,700 between W2 wages and the schedule C Net Profit.

Medicare is 2.9% (both er & ee parts) of all wages & 92.35% Schedule C Net Profit - no max.

You are paying 15.3% for……

SS for employer 6.2% (up to 137,700 wages & profit)

SS for employee 6.2% (up to 137,700 wages & profit)

Medicare for employer 1.45% (on all wages & profit, no max)

Medicare for employee 1.45% (on all wages & profit, no max)

[VolvoGirl]

Do you need some general self employment info?

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  Here's a Schedule C  https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

You can enter Self Employment Income into Online Deluxe or Premier but if you have any expenses you will have to upgrade to the Self Employed version.  How to enter self employment income

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

For the future, you should use a program like Quicken or QuickBooks to track your income and expenses.  There is a QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed  return....

http://quickbooks.intuit.com/self-employed

You will need to keep good records.  You may get a 1099NEC at the end of the year if someone pays you more than $600 but you need to report all your income no matter how small and if you don't get the 1099NEC.

You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

After it asks if you received any 1099Misc or 1099NEC it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% 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.  

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 15.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 14 which flows to 1040 line 8a.  Turbo Tax automatically calculates the SE Tax and Adjustment.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

Publication 463 for Travel, Gift & Car expenses

https://www.irs.gov/pub/irs-pdf/p463.pdf