What is the best way to deal with this tax issue?
January 10, 2009
jacobs mom asked:
i have been paid by my employer as an independant contractor so taxes were not taking out of my checks for the past 6 months…now i am getting deductions as an employee..should i have them take out more taxes or just pay at tax time? I made about 2500 a month? any advice would help..(I have 1 child so i get that credit and as head of household credits..and the 401k credit) Thanks!
i have been paid by my employer as an independant contractor so taxes were not taking out of my checks for the past 6 months…now i am getting deductions as an employee..should i have them take out more taxes or just pay at tax time? I made about 2500 a month? any advice would help..(I have 1 child so i get that credit and as head of household credits..and the 401k credit) Thanks!
3 Responses to “What is the best way to deal with this tax issue?”
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January 10th, 2009 at 7:24 pm
As a general rule have them withhold more. You might want to go to a Liberty Tax office near you and ask them to figure out how much you need to have taken out so you are close to even rather than off one way or another. They can do that, and will probably give you the advice without charge, especially since you will most likely need them to prepare your taxes come tax time.
Since Liberty Tax offices are franchises, not all outfits will give you the advice for free, but you could check with them, and also ask about the free tax training (actually the training is free but you pay for the books) Then they might even want you to work for them part or full time during the tax season.. and most of the franchises do the taxes for employees for free.
January 12th, 2009 at 1:47 pm
There are more factors then you have supplied necessary to properly answer you question. Some of those factors have to do with any possible deductions that you may be able to use to off set your income as an independent contractor. However the safe answer is YES, have them withhold more now. If you do so and pay more then is need at tax time you will have a refund. You very likely could get a tax professional to provide some free advise if you were to stop by an office and respond to their questions about all of those other factors. If someone gives you a quick answer based on the information you have provided here go someplace else.
January 13th, 2009 at 11:37 pm
Your estimated tax liability for the current year (generally) is 100% of the prior year liability or 90% of the actual current year liability.
If you paid no estimated taxes while an independent contractor you are probably delinquent on the early quarters of the current year.
There is a solution.
The IRS deems all withholding from wages to have occurred ratably over the year. So, subtract the amount that will be withheld from your wages under the present arrangement (from the time the employer started thru December 31st) from your prior year liability. If that result is a positive number divide it by the number of pay periods remaining in the year. Have the employer add that result to your present withholding.
That will avoid any estimated tax underpayment penalties. You may still owe taxes on April 15th (actually liability greater than withholding) but you don’t have to pay the balance until that date.