College student with 2 jobs (W-2 & Independent Contractor), both started halfway through year 2018. I am COMPLETELY LOST with tax filing/payments. Tax gurus, Please Help!

Hello, I am a college student living in New York, with 2 jobs. 

My first job is a W-2 job. I was hired as a teaching assistant at my own college, and my compensation is $1,050/semester. I will be working for them from September 2018 ~ December 2018. I'm not 100% sure but my college told me that I am exempt from FICA tax because I'm a student. For my W-4 form, I did not write to withhold any amount of money (I put down $0).

My second job is, I am an Independent Contractor. I started late May 2018, and I will be working as an Independent Contractor for them until December 2018. My estimated income as an IC for this duration of time in 2018 would be around $4,300 ~ $4,500. (One quick question here, the company is located in Pennsylvania, but I work remotely from here in New York. Which state taxes do I owe?)

Unless my contracts get renewed for both jobs, both will end around the same time, which is in December 2018.

1. Are the two incomes separate when it comes to tax filing/payments? For my tutoring job, is my college going to take care of my income tax (or in other words, do I have to do any sort of filing/paying?)

2. Ultimately, how much tax do I owe in total altogether (federal & state & self-employment tax), with these 2 jobs I have? 

3. Also would I have to pay quarterly (I heard that if I owe less than $1,000 in taxes, I do not have to)? 

4. What TurboTax system should I use & when should I start? 

I would be vastly grateful and would sincerely appreciate it if you could give me some sage advice. I really hope you tax experts could point me to the right direction here. I am completely lost and this is such a huge uncharted territory for me. 

Thank you so much in advance!


Answer

You file one tax return that lists all your combined income and deductions.

Self employment income is reported on schedule C.  You report your business income and expenses.  The net profit is transferred to the regular form 1040 and added to any other income (W-2 job, investments, etc.)  The net profit is also transferred to schedule SE to compute the self-employment tax you owe.  This is roughly 15% of your net profit, and is the self-employed person's version of social security and medicare tax.

The W-2 job is straightforward.  You get a W-2, enter it on your tax return.  The school is correct that students who are working at certain jobs for the school they attend are exempt from social security and medicare tax. (This is a fairly special set of circumstances but applies to teaching assistants, RAs, research assistants and so on.)

For self-employment/independent contractor, you are required to keep accurate business records of your income and expenses.  This can be done in handwritten ledger books, spreadsheets, or business accounting software.  A separate business bank account and business credit card may be helpful in separating personal and business expenses. 

(If audited, any expenses you can't prove may be denied, and if you don't keep accurate records of your income, the IRS can decide that any bank deposit was business income, and can even impute cash business income that they imagined you got if you appear to be living a lifestyle that is more than you can afford from the income you officially report.)

You owe the 15% self-employment tax on your net SE income, regardless of amount.  So perhaps $675 in your case.  The standard deduction for single filers in 2018 is $12,000, so you owe no federal income tax on any income below that amount, which is seems it probably will be below that amount.

You are generally required to pay estimated taxes quarterly (specifically, due April 15, June 15, Sept 15 and Jan 15, not exactly 3 month intervals) based on your income for that quarter.  But you are correct that no penalty will be assessed at the end the year for failing to make estimated payments IF your total tax owed is less than $1000.

Since you are physically working in New York state you would owe NY tax on your income.  If you are within the borders of NYC, NYC assesses an additional income tax on people working or or living in NYC.

Whether you owe PA tax depends on two things.  First, where is your official state of residence -- where your permanent home is.  If your permanent home is not in NY, then you will be required to file a state resident tax return for the state you live in and a non-resident return for NY state.  Your state resident return reports and pays tax on all your world-wide income, while your non-resident return only pays tax on income from that specific state.  Prepare the non-resident return first, because you get a credit on the resident return for taxes paid in other states (this minimizes but may not completely eliminate "double taxation"). 

If your permanent resident is in NY then you only file a NY resident return.

The second factor is that some states charge income tax on telecommuters who work for a company located in their state even if the worker physically lives in another state.  

A tax journal article says this "In New York, Pennsylvania, Delaware, New Jersey and Nebraska, however, all wages earned from an employer in any of those states are allocated to that state unless by necessity the nonresident’s work must be performed from his or her out-of-state location. This rule has been enforced by the taxing authority in New York, legally challenged and upheld."

So if the work you are doing for the PA company can only be done in NY (for whatever reason) then it is only NY income.  If it is telecommuting that you could do in PA and are doing in NY for convenience (app developing, medical transcription, etc.) then it may be considered PA income.  But again, if you file multiple state returns, you get offsetting credits.

To prepare a tax return that includes self employment income, you have a number of options.

Online: Turbotax Self-Employed (second highest price) or Turbotax Live (highest price, includes unlimited free help and review from a real CPA or tax accountant).  The Free and Deluxe versions do not allow entering business income and deductions.

Desktop (buy as a download or CD from Intuit or from retailers like Amazon, Staples, Best Buy). Deluxe will prepare a schedule C but it does not have much guidance.  Home & Business has much more built-in help but is more expensive.  None of the desktop programs offer the Live experience, but they are generally more cost effective if you don't need live help.

Also, If your total income is less than $33,000, you can file using the TaxFreedom edition, which includes self-employment and other forms not normally included in the "regular" free version of Turbotax. The IRS requires TaxFreedom to be a separate web site, and if you already have a regular Turbotax account, you will have to make a new account on the Freedom site. https://turbotax.intuit.com/taxfreedom/


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