Self Employment taxes & estimated payments

[Katsmeow]

Hope someone knows something about this and can me how my son can make estimated payments of self employment taxes.

My college student son has a job where he is an independent contractor and no withholdings for taxes are made.

He knows he has to be both the employee and employer share of self employment taxes. He is only making $400 a month. He has been paid so far for one month of work.

He is our dependent but given what he is making I don't expect him to owe any income taxes for the year. However, he will owe self-employment taxes.

Turbo Tax says he doesn't have to make estimated payments if he will owe less than $1000 and he will otherwise withhold 90% of his 2013 tax liability (he won't) or will withhold 100% of his 2012 tax liability. He had no tax liability in 2012 and filed no tax return. So I don't know if that means he can just not do anything withholding this year. Since I don't know, I figured it is easiest for him just to go ahead and file and estimated payment of $61.20 by 6/17 and then file quarterly after that.

My first thought was to set him up at EFTPS. We did that and he was supposed to be mailed a PIN. He got a letter today saying that the information submitted doesn't match IRS files. I don't know if this is because (1) he has never in the past filed a tax return, (2) he used his middle name at EFTPS while on our tax returns I use his middle initial instead, (3) his SS number was incorrectly typed in at EFTPS, or (4) some other unknown reason. It basically says to either call the IRS to verify information or check a current tax return and re-enroll. So he re-enrolled after double checking my tax return (where he is shown as a dependent) and double checking his SS number. I don't know if that will solve this. However, it takes a week or more to get the PIN so even if it works we probably don't have it before 6/17.

So I then decided to do estimated tax vouchers through Turbo Tax. Turbo tax though wants to do vouchers for the whole year for $113 for each quarter. However, he didn't need to do one in April and he only needs to do one for $61.20 for June with larger ones later. I found no way in Turbo Tax to create vouchers for estimated taxes for different amounts.

So -- after all that --

Is there some place to get and print estimated tax vouchers where he can fill in the exact amount he wants to send?

 

[pb4uski]

You can print them out in TurboTax. Open his last year return and open a form for the 2013 estimated payments. I believe that you can override any of the vouchers that TurboTax comes up with, print the ones you need and ignore the rest.

As long as the IRS gets its money and his SS so they know where to apply it you should be all set.

Candidly, given the amounts involved, I wouldn't fret too much about it.

 

[haha]

Hope someone knows something about this and can me how my son can make estimated payments of self employment taxes.

My college student son has a job where he is an independent contractor and no withholdings for taxes are made.

He knows he has to be both the employee and employer share of self employment taxes. He is only making $400 a month. He has been paid so far for one month of work.

He is our dependent but given what he is making I don't expect him to owe any income taxes for the year. However, he will owe self-employment taxes.

Turbo Tax says he doesn't have to make estimated payments if he will owe less than $1000 and he will otherwise withhold 90% of his 2013 tax liability (he won't) or will withhold 100% of his 2012 tax liability. He had no tax liability in 2012 and filed no tax return. So I don't know if that means he can just not do anything withholding this year. Since I don't know, I figured it is easiest for him just to go ahead and file and estimated payment of $61.20 by 6/17 and then file quarterly after that.

My first thought was to set him up at EFTPS. We did that and he was supposed to be mailed a PIN. He got a letter today saying that the information submitted doesn't match IRS files. I don't know if this is because (1) he has never in the past filed a tax return, (2) he used his middle name at EFTPS while on our tax returns I use his middle initial instead, (3) his SS number was incorrectly typed in at EFTPS, or (4) some other unknown reason. It basically says to either call the IRS to verify information or check a current tax return and re-enroll. So he re-enrolled after double checking my tax return (where he is shown as a dependent) and double checking his SS number. I don't know if that will solve this. However, it takes a week or more to get the PIN so even if it works we probably don't have it before 6/17.

So I then decided to do estimated tax vouchers through Turbo Tax. Turbo tax though wants to do vouchers for the whole year for $113 for each quarter. However, he didn't need to do one in April and he only needs to do one for $61.20 for June with larger ones later. I found no way in Turbo Tax to create vouchers for estimated taxes for different amounts.

So -- after all that --

Is there some place to get and print estimated tax vouchers where he can fill in the exact amount he wants to send?

Yes, from IRS.gov. You could also get Turbo-Tax to queue up some blank 1099-ES forms, and fill them out however you wish. Getting the forms directly from IRS is easier.

Ha

 

[youbet]

Google is your friend.

http://www.irs.gov/pub/irs-pdf/f1040es.pdf

You might be over-complicating this..........

 

[Katsmeow]

Thanks all. The reason I hadn't thought of IRS directly was that years ago IIRC you had to print out certain forms in certain colors or they weren't official. I don't remember the details but then I started using software....

Didn't know that about being able to print out blank forms from Turbo Tax.

And, yeah, I'm not too worried about it due to the amount involved but since I'm helping my son I want to get it right and show him how to do it right for when he is doing all this himself later on.

 

[youbet]

since I'm helping my son I want to get it right and show him how to do it right for when he is doing all this himself later on.

It's not very complicated Kat.

Just tell your son:

1. Earn money
2. Send it to the gov't
3. Don't expect a thank you card

 

[Katsmeow]

It's not very complicated Kat.

Just tell your son:

1. Earn money
2. Send it to the gov't

 

[eridanus]

I routinely owe several thousand each April and the penalty is a pittance. If he doesn't make the 6/17 deadline (and even if he does), he can fill out Form 2210, line 18 (Section A, Underpayment Penalty). I wouldn't sweat it.

 

[clifp]

Pretty sure if he didn't pay any tax in 2013, then there is no penalty for not withholding enough in 2013. He'll owe what he owes but he'll have until April 15, 2014 to pay it.

 

[audreyh1]

Pretty sure if he didn't pay any tax in 2013, then there is no penalty for not withholding enough in 2013. He'll owe what he owes but he'll have until April 15, 2014 to pay it.

+1

Safe harbor - if you pay the prior years taxes* in equal installments for each of the periods, you will owe no penalty.

* multiply by 1.1% if prior year income was over $150K

 

[kaneohe]

* multiply by 1.1% if prior year income was over $150K

audrey...........your fingers might get a ticket for speeding.........
I think you meant.....multiply by 1.1x (or 110%)?

 

[Katsmeow]

Pretty sure if he didn't pay any tax in 2013, then there is no penalty for not withholding enough in 2013. He'll owe what he owes but he'll have until April 15, 2014 to pay it.

I know that if you withhold 100% in 2013 of the taxes you paid in 2012 (unless income is above a certain amount in which case it is 110%) that you don't have a penalty for under withholding in 2012. What I didn't know for sure was whether that applied to someone who had no income at all in 2012 and therefore filed no tax return.

In any event, he doesn't mind doing the estimated taxes and I sort of want him to get in the habit of doing it if he needs to do it.

 

[audreyh1]

audrey...........your fingers might get a ticket for speeding.........
I think you meant.....multiply by 1.1x (or 110%)?

Right - thanks. Multiply by 1.1, or 110%.

But the OP doesn't have to worry about this scenario for her dependent anyway

 

[clifp]

I know that if you withhold 100% in 2013 of the taxes you paid in 2012 (unless income is above a certain amount in which case it is 110%) that you don't have a penalty for under withholding in 2012. What I didn't know for sure was whether that applied to someone who had no income at all in 2012 and therefore filed no tax return.

In any event, he doesn't mind doing the estimated taxes and I sort of want him to get in the habit of doing it if he needs to do it.

He paid $0 taxes in 2012, and so he has 100% of his taxes in 2013.

You are right it is a good habit to get into especially because young people are often horrible about saving for taxes. Also one of the by products of zero interest rates for savings is it just doesn't matter. When you could get 6% in a money market and you got a refund of $2,000 you were losing out on $60 in interest. Now days at .1% interest your no interest loan to Uncle Sam cost you a buck. Might as well over withhold to avoid penalties.

 

[RE2Boys]

As an independent contractor, your son would be filing income tax return with a Schedule C. He pays self-employment taxes on his profits. Don't forget to track and deduct expenses of his venture, such as mileage, small tools & supplies, possibly uniform, any licenses or out of pocket training. And he would only pay self employment taxes if his profit for the year exceeded $400.

My 14 & 16 year old sons are soccer refs and get paid mostly in cash so I insist they keep a log of income & expenses & mileage.

 

[packrat44]

Your son had $0 liability in tax year 2012. He has met Safe Harbor for 2013 by ensuring he has paid 100% of the 2012 liability which was $0. If he were to make income where his taxes for 2013 are $2,000 (example). Just pay the amount prior to 4/15/2014. For 2014 he could pay estimated taxes of $2,000 to meet the 100% Safe Harbor rule. Even if he had a $50,000 tax liability for 2014, he has met the IRS requirement and no penalty is due for under paying. If he chose not to pay estimated taxes for 2014 and his tax liability were less than $1,000, no penalty. Even if his liability were to exceed the $1,000 and he had not paid the estimated taxes, it is rare he would get a penalty. If a penalty were received it would be small.

 

[Katsmeow]

As an independent contractor, your son would be filing income tax return with a Schedule C. He pays self-employment taxes on his profits. Don't forget to track and deduct expenses of his venture, such as mileage, small tools & supplies, possibly uniform, any licenses or out of pocket training. And he would only pay self employment taxes if his profit for the year exceeded $400.

My 14 & 16 year old sons are soccer refs and get paid mostly in cash so I insist they keep a log of income & expenses & mileage.

What about mileage driving from our house to the dojo (he works at a martial arts dojo) and back? Could he deduct that mileage?

Probably won't make a difference since his profit will be above $400 but not enough that he will owe income tax. Still good to know.

 

[REWahoo]

What about mileage driving from our house to the dojo (he works at a martial arts dojo) and back? Could he deduct that mileage?

Probably won't make a difference since his profit will be above $400 but not enough that he will owe income tax. Still good to know.

Deducting Business Expenses

 

[Bestwifeever]

Although he would be small potatoes to the IRS and not worth going after, they may not consider him an independent contractor (thus making the employer subject to paying into FICA and withholding his share) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Defined:

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor and your earnings are generally not subject to Self-Employment Tax.

 

[target2019]

Who is, and isn't, a contractor is dependent on a list of items that the IRS changes from time to time. Used to be a list called 20 questions. Looking at the IRS site now, there is a form SS-8 that is used to make the determination.

What is important is that the the IRS determines this, not the employer or employee. If just one instructor at the facility is paid on a W-2, then it is difficult to justify others as being 1099 workers.

 

[Katsmeow]

What is important is that the the IRS determines this, not the employer or employee. If just one instructor at the facility is paid on a W-2, then it is difficult to justify others as being 1099 workers.

My understanding is that everyone is paid as an independent contractors. No one is paid on a W-2. DS feels that he has a lot of freedom to determine how he does his work.

Whether he would be considered an independent contractor or an employee I have no idea, but I don't think he has any issue being considered an independent contractor and has no objection to paying the Self-employment taxes.