W-2 Income and Self Employed Income

[Am_pick0406]

Hello,

I receive W-2 income from my employer and my husband is self-employed receiving a 1099-NEC from his independent contractor job.  On my W-2 payroll, the tax withholding filing status is "Married Filing Jointly," and the state withholding has 1 allowance.  In this scenario, I have 2 questions:

1. Is my husband required to make estimated quarterly tax payments?  Or can we just account for that when we file our taxes?  FYI - he currently is not making estimated quarterly payments.  Last year was his first year as a self-employed individual and our first year filing jointly, so we are fairly new to this.

2. If he's required to make quarterly payments, are they based on his self-employment income only since I'm already withholding from my W-2 paycheck?  And how are the payments calculated?

Thank you!!!

[RPZ1]

Hello,

I will be including a link for a more detailed explanation that you can have for future reference. The answer to the first question is yes he should make quarterly estimated tax payments. If you wait until the end of the year to pay the self-employment taxes the IRS may charge you a penalty. The dates that the payments are due to the IRS are 4/15, 6/15, 9/16 and 1/15 of the following year. As an example the 4th quarter estimated tax payment for 2023 will be 1/15/2024.

Yes you are correct that your husband is the only one required to make estimated payments on his income your taxes have already been paid. 

https://turbotax.intuit.com/tax-tips/self-employment-taxes/a-guide-to-paying-quarterly-taxes/L6p8C53...

https://turbotax.intuit.com/tax-tips/small-business-taxes/estimated-taxes-how-to-determine-what-to-p...

https://turbotax.intuit.com/tax-tips/self-employment-taxes/tips-for-paying-estimated-taxes/L1nDU0sUs

The best way to pay the estimated taxes is by creating an account at IRS.gov where you can pay digitally. When you open their site type "estimated tax payments" into the search bar.

Hopefully these links will help you moving forward

[JandKit]

Hi Am_pick0406,

just to chime in with the reply already given, the way to calculate the estimated tax payment is to accuately calculate the income received. If that income is on the 1099 NEC, Box 1 will indicate the amount paid for the year...

Next,

calculate the amount of deductions or expenses that your husband incurred.

Next, Subtract the difference of these two,

                                         Income minus deductions/expenses

the remainder is your profit or loss.

If negative, there is no tax due.

If positive:     Multiply the profit or loss by  0.035373875. This product is the amount of taxes due quarterly.

[Am_pick0406]

Thank you!

Do we need to add 4/15 and 6/15 quarterly amounts to the 9/16 quarterly payment?  Thus making 3 quarters worth of payments next month?

[JandKit]

Hi Am_pick0406,

I would make the appropriate payment as soon as possibe. The dates given are the lastest that any payment can be made in any quarter. 

[RPZ1]

Concerning the missed payments I would advise you to make those payment as soon as possible. You can add them to the third quarter payment if you'd like or create an account at IRS.gov and make those payments now digitally. By doing this you insure that the IRS received them and have a receipt. They may still impose a penalty but the sooner you make those payment the lesser the penalty incurred.

[Am_pick0406]

So for 2023 estimated quarterly tax payments, we need to take his income amount from 2022 (shown in Box 1 on 1099-NEC),  divide by 4, then pay that amount quarterly?

For example:  If his Box 1 income is $10,000, and there aren't any deductions or expenses (I understand this likely won't be the case, but just for example), we multiply the positive profit by 0.[removed] = $353.74, then make quarterly payments of that amount?

[RPZ1]

That is correct but if the income increases this year I would increase the amount based on the amounts he's receiving that are larger than 2022.

[Am_pick0406]

Is there an income limit where he wouldn't have to make quarterly payments?  Or do this apply to any amount of self employed (1099-NEC) income?

[RPZ1]

you are supposed to include all self-employment income on your tax return but the maximum you can receive before reporting is $400. I'm including a link as well for more detail: https://www.irs.gov/faqs/interest-dividends-other-types-of-income/1099-misc-independent-contractors-....

[VolvoGirl]

For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% 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 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.)

Here are the blank Estimates and instructions…..
https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Or you can pay on the IRS website. Be sure to pick 2023 1040ES payment
https://www.irs.gov/payments

For the future  you could even just increase your W2 withholding to cover the SE tax instead of making estimated payments.