I am an Enrolled Agent and have represented hundreds of people with Power of Attorney before the IRS. This had led me to think about why people owe. Today we’ll talk about the Self Employed, Self Employment Tax and Estimated Taxes
There are two types of self employed: Those that know they have a business and those who think they have a job but get paid with a 1099.
When you are employed (W2) your employer withholds money for income tax (W4) and they withhold 1/2 of your Social Security & Medicare. The contribute the other 1/2.
When you are Self Employed you must make your own Income Tax payments and since you are the employer and the employee and must pay both 1/2s of your Social Security and Medicare (Known as Self Employment Tax this comes to 15.3% of your net income).
You make all of these payments as Estimated Taxes and the IRS expect them 4 times per year.
So one way people end up owing money is that they don’t even know that there are such things as Self Employment Tax or Estimated Taxes
