Self employment as a second job

[jtenos]

I've been reading up on self employment, quarterly estimated payments, underpayment, all that stuff, and I'm confused about just about all of it.

I have a regular day job, and also I started freelancing this year, where I make roughly 40% of the money as my regular job. My first pay was in April, and I don't have any guarantee that I'll continue to work the rest of the year.

Everything I read tells me that I have to make estimated tax payments.

First thing - I've never understood how to keep FICA separate from regular tax. In my paycheck FICA is a fixed amount and doesn't even come into play during 1040 time. In the estimated payments, I'm supposed to make one big payment. How do I know how much of that money went to FICA vs. regular income tax? What happens if I end up paying more than the yearly cap for Social Security?

Second - the calculations involved are really confusing me. Suppose I don't do estimated payments, and instead tell my employer to withhold an extra $X dollars per paycheck, based on what I think my liability will be from the IRS Tax Withholding Estimator tool? Will that keep the IRS happy? I've read that they penalize based on when those estimated payments should have been made, but if I'm paying through my employer throughout the year, they're getting their money on time.

Third, are the penalties even published anywhere? I've seen contradictory articles, but it seems it's only something like 4% of the underpayment - so if I underpay by $2000, then I only need to pay the $2000 plus around $80 next April. It would make sense to me to pay off some 16% credit card debt with my current cash on hand and just eat the penalty later - is that even an option, or is that some kind of crime?

Any help is much appreciated.

[VolvoGirl]

In your tax return the regular income tax and FICA (self employment tax) are added together giving you a total tax due.   So the estimated tax you pay really goes to both.  It's like withholding from your job. Yes You can increase your job withholding to cover your self employment.

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.

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 2019 Schedule C Net Profit or Loss now goes to 1040 Schedule 1 line 3.  Then the total on schedule 1 line 9 goes to 1040 line 7a.

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 $8,249.80 for social security. The max income for social security for 2019 is $132,900 between W2 wages and the schedule C Net Profit.

Medicare is 2.9% (both er & ee parts) of all wages & schedule C profit - no max.

You are paying 15.3% for……

SS for employer 6.2% (up to 132,900 wages & profit)

SS for employee 6.2% (up to 132,900 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]

More general 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.  You will need to use the Online Self Employed version or any Desktop program but the Desktop Home & Business version will have the most help.

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 need to report all your income even if you don't get a 1099Misc. 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 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.

FOR 2019

Here's a blank schedule C to see how it works

https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

For 2019 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 7a.

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

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/...

[fanfare]

Enough research -  it's not that complicated.

You will pay 15.3% SE tax on that 40%

call that amount A

figure 20% regular tax on that 40%.

call that amount B

add A+B - divide by four - that's your quarterly estimated tax payment