I will be paid $5000 this year over a few months working as a part time consultant. How am I taxed?

Question

I will be paid twice a month, probably about 400 a paycheck. We file married. My husband works 2 jobs and I have this marketing consultant gig i picked up. I am an independant contractor. Can we just add this to our household income and be taxed accordingly or do I have to file quarterly and pay estimate taxes? Thanks!

I was hoping we could adjust my husband's to compensate. Last year, we got about $900 back. So how would we adjust it, just take an additional $20 a week out of his?

bostonianinmo, i don't understand. is the bottom line that i should expect to pay 28% of the $5000 in taxes or that plus the self employment tax?

OK, I understand generally although I do not know what brackets we are in. How to I find out?

Answer 1

On your tax return, you'll include a schedule C or C-EZ showing your consulting income and any associated expenses, and a schedule SE to calculate self-employment tax on the net. The net from your C-EZ will transfer to your 1040, and add to your other joint income for the total to calculate your income tax on. The self-employment tax from the SE will also transfer to the 1040, and be added to your income tax to get your total tax due.

The self-employment tax will be 15.3% of the net income, so probably around $750. Income tax will depend on your other income, but if you're in a 15% bracket would be about another $750 - if you're in a 25% bracket would be around $1250. These amounts would be lower if you have any significant deductible expenses associated with your consulting.

The IRS doesn't care whether you make quarterly payments, or pay in extra some other way like by increasing your husband's withholding. But if when you file your return you owe more than $1000, you could be subject to penalties for underwithholding.

OK, assume for the moment that you will owe $2000 tax on your consulting income - that's if you don't have much in the way of deductions, and are in a 25% bracket. You said you got a $900 refund last year - if nothing else changed much except for the consulting, you could figure on that again, so take that off the $2000 and you'd still owe an additional $1100. If you want to take it out of your husband's pay, then divide that by the number of pay periods left this year and that's the number to put on the W-4 as additional withholding. If he gets paid weekly, that would be around $35 a week. If you're just in a 15% bracket, then you'd only have about $600 to make up, so around $20 a week would come pretty close.

Answer 2

You may have to make quarterly estimated payments, if your total tax liability will exceed $1,000 over and above the amounts withheld from you and your husband's W-2 jobs. Alternatively you and / or your husband could have additional money withheld by your W-2 employers to cover the liability. File updated Form(s) W-4 with your employer(s). There's a line on the Form W-4 to tell your employer how much extra to withhold.

You can avoid penalties if your tax due is $1,000 or less when you file OR if you paid in at least 90% of your total tax liability through withholding and/or estimated payments OR if you paid in at least 100% of LAST years total tax liability through withholding and/or estimated payments.

The net income will be subject to self-employment tax at 15.3%. The net income will also be subject to tax at your margainal rate. If your marginal rate is 25%, that's the rate it will be taxed at unless it puts you into the 28% bracket where the excess would be taxed at 28%.

Addendum: The SE and income taxes are separate. If your marginal rate is 15%, the total will be 30.3%. If your marginal rate is 25%, the tota will be 40.3%, etc. So, if you're marginal rate is 25%, the total bite could be as high as a little over $2,000 or about $40 per week.

Any business expenses against the income will reduce the net income and therefore the total tax due. Without knowing what those expenses might be it's not possible to give a more accurate estimate.

Answer 3

It depends on how much tax you paid last year and how much tax your husband is having withheld from his check. You have the make estimated tax payments of at least 90% of the current years tax. If you don't you will get hit with a penalty. Do some calculating and figure out what your tax liability will be this year. An easy fix would be for your husband to have additional amount withheld. That way you wouldn't have to hassle with filing the quarterly estimates.

Answer 4

You will add this to your household income, but remember that you are responsible for your own FICA if no taxes are being withheld. I don't know your tax bracket, but if you are earning additional income that is not taxed, I would keep at least 25% of it for taxes. If you and your husband make over 100K then I'd keep 30% or more.

Answer 5

You should pay estimated quarterly taxes to your state and the federal government. You can print the forms on the official IRS site, www.irs.gov.