Self Employment Tax Question

[hzfess]

I have a contractor side gig that I work 4 hours (or less) per week for. I also have a w-2 job that I work 40 hours per week for. In June of 2023 I ended employment at another w-2 position that I worked 42.5 hours per week for.

Question 1: What percentage of my bi-weekly contractor pay do I need to set aside for taxes (federal and GA state taxes)?

Question 2: Will I need to pay my taxes for my bi-weekly contractor pay quarterly OR do I wait until I file my W-2 tax forms?

[Holly W]

Hello @hzfess 

Thank you for joining us today!  We are so happy you are here!  You're a busy bee!  

Depending on several situations within your tax return will be determine if you need to make estimated payments or not.  

If you make $400 or more in contracting gig work, you will need to file a Schedule C with your personal tax return Form 1040.  You will report your Gross income, and then expenses for the year, and your net profit is what you will pay taxes & self employment tax on.  

Your net profit/loss income is figured in with your W2 Income from both jobs, and any other taxable income to come up with your adjusted gross income.  If you have a net profit, you will have to pay Self Employment tax on that profit.

Question 1: What percentage of my bi-weekly contractor pay do I need to set aside for taxes (federal and GA state taxes)?  I would recommend trying your best to determine if you will have a profit or loss for that quarter and make quarterly estimated tax payments.  Here is how to determine Federal Estimated tax payments, and Georgia Estimated tax payments.

Question 2: Will I need to pay my taxes for my bi-weekly contractor pay quarterly OR do I wait until I file my W-2 tax forms?  The best options would be to either pay Quarterly or Annually, when you file your Annual Tax Return.  Please use the links to determine the best outcome for your situation.

I hope this helps and I am more than willing to provide further information if you have more questions.

Good luck and thank you again for participating!

Cheers, 
Holly W

[Tax Hero Niki]

Hi hzfess!

Excellent question.

1. The specific amount that you will need to pay, however, will depend on many factors, including the amount of wage earnings and withholdings from your W-2 jobs.

TurboTax has tools for this. Check out the Self Employment Tax Calculator or TaxCaster Tax Calculator. They will help you determine how much to pay and when.

2. The government operates as pay-as-you-go. As income is collected, they require their cut at least on a quarterly basis. Generally, if you expect to owe more than $1000, then yes, you should consider sending an estimated tax payment to avoid underpayment penalties. 

[MelanieCPA]

Hi @hzfess ,

Thank you for joining us today!  Sounds like you are busy! 

The IRS expects that we "Are Paying Taxes as We Go"  so it is always recommended that you are making at least quarterly estimated taxes to the IRS.  You have a couple of options.  You can make and track your estimated payments by setting up an account on the IRS website:  IRS Payments .  Or, because you have W2 employment, you can have extra withholdings withheld from your paycheck by adjusting your W4.  On line 4c of the W4 you can ask your employer to withhold an additional amount to cover your estimated tax payments.

 Once you have filed a tax return with self employment income, TurboTax will generate your estimated quarterly tax vouchers for the upcoming year.  To estimate your withholdings for this initial year, I recommend checking out our TurboTax product Tax Caster to help estimate your annual taxes.  Tax Caster 

Here is a link to the state of Georgia estimated tax guide.  Georgia Estimated Tax   In STEP 1, you can view GA's Tax Booklet on page  for the tax tables for your specific filing status and income level to help determine what percentage you should estimate for your state taxes.

Thank you!

Melanie, CPA

[MarthaT]

Hello 

Thank you for your questions. 

First, the percentage of your contractor pay depends on your net income.  Since you are self-employed individual you are required to pay self-employment tax, which is your Social Security and Medicare as employee and employer since you are your own boss.  The rate is 15.3% (12.4% Social Security and 2.9% of Medicare) for federal income tax.   Regarding the state you can find more information at https://turbotax.intuit.com/tax-tips/state-taxes/what-are-state-income-taxes/L4O5May37 and it would be smart to make payments too.

Second, it would be smart if you pay quarterly so you do not have to pay penalties.    The following information can help you with your quarterly taxes https://turbotax.intuit.com/tax-tips/self-employment-taxes/a-guide-to-paying-quarterly-taxes/L6p8C53....

You can use the Tax calculator to estimate your taxes at https://turbotax.intuit.com/tax-tools/

Thank you so much and I hope this answered your question