Your Bookkeeping Department, Miami Bookkeepers Help Side Job Workers Understand Their Federal Income Tax
Federal Income Tax – The side job economy has become huge, with realtors, Uber drivers, freelance writers and even dog walkers partaking in the mix. Companies such as Lyft, Postmates and TaskRabbit have gig workers joining every day. In fact, according to a CreditLoan survey featured on Monster, rideshare drivers are making a median monthly income of $350, with a maximum of $3,000. Your Bookkeeping Department learned fitness trainers and coaches are making about $20 an hour. Reselling items online has a maximum monthly income of $1,500. And the list goes on to include statistics on tutors, babysitters, housecleaning and the like.
But like every independent contractor knows, the side job doesn’t end with the job itself. There are a lot of to-do’s added to the work such as proposals, emails, applications, and administrative work. If you’re a side job worker, you need to figure out your tax returns and how much you should set aside since there’s no employer taking out a specific amount of your income every two weeks. If you work for an employer, a regular 9-to-5 job, your federal income tax, Medicare tax (1.45%) and Social security tax (6.2%) are withheld automatically, in addition, often, to deductions for healthcare and retirement contributions.
For freelance workers and other self-employed entrepreneurs, social security and Medicare taxes are at a combined fixed rate of 15.3%. This self-employment tax is virtually double, sine employers pay the other half for employees. But when you’re working for yourself, you’re both employer and employee. You’re also getting 1099 MISC forms from clients versus a single W2 form for filling purposes. When it comes to federal income tax, the rate depends on your tax bracket (how much you make with your side hustle annually.)
Experts in accounting and bookkeeping like Your Bookkeeping Department suggest you put aside 30% of your income for taxes every time you get paid. Even though that percentage is higher than what’s typically needed, it’s a good idea to have a buffer. In the end, you’ll get a tax refund around tax season time. So for every dollar, you’re putting away 30 cents.
Federal income taxes and self-employment taxes are paid throughout the year, as money is earned. So side job workers have to pay them quarterly. Every independent contractor expecting to owe $1,000 or more in annual axes has to file quarterly taxes with the 1040 ES form.