2006 Income from 2 employers, one taxed me one didn't

[CurvKyle]

Florida

I made about $9,000 from my first employer and he took out income tax, SS, FICA, etc..

My new employer pays me out of his business checking account and does not take out any taxes. I estimate I will make about $10k taxable income working for him until the end of this year.

I've never made more then $6k per year so I've never had to deal with the tax bracket before.

My questions are:

1. Since I have made more than $7,550 with my first (taxing) employer do I have to pay extra money come tax time or is this automatically done through payroll tax deductions?

2. Assuming I make $10k working for this other employer and he takes no taxes out, what would I be paying in taxes on this income?

I'm basically trying to get a good idea on what I am going to owe the IRS when taxes are due, i've never made this much money before so it's all new territory for me.

thanks for the help!

 

[abezon]

You're going to owe, unless you have a child living at home.

Your current employer is paying you as an independent contractor, & is not paying into social security for you. This means you either have to complain to the IRS & hopw they tell him to pay you as an employee (at which point you'll be fired & have to find a new job), or you pay twice the employment taxes you otherwise would. Save 20% of every check & then get your taxes done early so you know if you need to save more for April 15, or will get a refund.

 

[JETX]

Since I have made more than $7,550 with my first (taxing) employer do I have to pay extra money come tax time or is this automatically done through payroll tax deductions?

You are going to have to pay BIG TIME. When you work for someone, the employer and employee split the FICA obligation of 15.3% of earnings (7.65% each). However, since your second employer is paying you 'under the table', you are liable for the ENTIRE obligation. Also, your taxes are taken out of your pay as you earn, so you are required to report those earnings quarterly and pay your estimated tax on them. If you don't, you will get hit for all the tax liability at the end of the year PLUS a penalty for not paying quarterly.

2. Assuming I make $10k working for this other employer and he takes no taxes out, what would I be paying in taxes on this income?

Depends on lots of factors... go to http://www.irs.gov/businesses/small/article/0,,id=110413,00.html
and
http://www.irs.gov/pub/irs-pdf/p505.pdf

I'm basically trying to get a good idea on what I am going to owe the IRS when taxes are due, i've never made this much money before so it's all new territory for me.

And will be an even bigger 'surprise' when you get hit with all that tax and penalty at one time!!!

 

[CurvKyle]

Thank you both for your quick replies.

You are going to have to pay BIG TIME. When you work for someone, the employer and employee split the FICA obligation of 15.3% of earnings (7.65% each). However, since your second employer is paying you 'under the table', you are liable for the ENTIRE obligation. Also, your taxes are taken out of your pay as you earn, so you are required to report those earnings quarterly and pay your estimated tax on them. If you don't, you will get hit for all the tax liability at the end of the year PLUS a penalty for not paying quarterly.

I just started the job with my second employer, I haven't even gotten my first pay check yet. So, since I am an Independant Contractor for this second employer I have to report my earnings every 3 months? seesh. Do you guys think I should see an accountant to get this all straightened out? I'm not sure I can get it done correctly on my own, since it's all kind of new to me.

What really angers me is the other guys that work for my employer don't even claim taxes, because the employer doesn't send out 1099's. I don't want to take any chances with my freedom though, so i'll just pay

 

[LdiJ]

Thank you both for your quick replies.



I just started the job with my second employer, I haven't even gotten my first pay check yet. So, since I am an Independant Contractor for this second employer I have to report my earnings every 3 months? seesh. Do you guys think I should see an accountant to get this all straightened out? I'm not sure I can get it done correctly on my own, since it's all kind of new to me.

What really angers me is the other guys that work for my employer don't even claim taxes, because the employer doesn't send out 1099's. I don't want to take any chances with my freedom though, so i'll just pay

Your employer is nuts....because he is also paying extra taxes himself because he cannot deduct your pay as an expense.

No, you really don't need to see an accountant at this point...you can, but its not that complicated.

For this first year, you simply put 25% (20% isn't enough in my opinion and 30% would be even better) away in a savings account to pay taxes.

When you get your taxes done at the end of the year (you will need to use a professional) you will have a good idea what your total tax bite will be for the following year. At that point you start making estimated payments. The tax professional will be able to give you payment vouchers.

However, ideally you would really be better off looking for another job....because you will be effectively making 7.68% less than what you make on paper....AND you won't be eligible for unemployment if he lays you off.

 

[chitown]

Your employer is nuts....because he is also paying extra taxes himself because he cannot deduct your pay as an expense.
No, you really don't need to see an accountant at this point...you can, but its not that complicated.

??? subcontractors have always been deductible as a business expense...why wouldnt they be deductible?


For this first year, you simply put 25% (20% isn't enough in my opinion and 30% would be even better) away in a savings account to pay taxes.

Dont agree but need more facts such as dependents, filing status, itemized deductions etc. Dont forget as an independent contractor you can offset that income with costs such as travel to the job, mileage or actual auto expenses, entertainment, supplies for the job,, uniforms, etc. Assuming wage paying employer withholds sufficiently (w-4 u filed claimed how many exemptions? Ask to file a new one and complete as single 0 for max withholding) 10K in SE income is 1530 in se tax. Prob can be reduced with expenses suggested above. Income tax will be minimal with standard deduction and exemptions.

When you get your taxes done at the end of the year (you will need to use a professional) you will have a good idea what your total tax bite will be for the following year. At that point you start making estimated payments. The tax professional will be able to give you payment vouchers.

However, ideally you would really be better off looking for another job....because you will be effectively making 7.68% less than what you make on paper....AND you won't be eligible for unemployment if he lays you off.

Compute 2006 taxes early as suggested previously for no surprises, but imo you will be fine with additional withholding at wage paying job.

 

[CurvKyle]

FYI - i'm single, no dependants.

chitown, you say I can list entertainment as a tax write off? What kind of entertainment exactly and why?

thanks

 

[LdiJ]

chitown....I couldn't quote you because you put your comments inside the quote.

However, he stated that his employer doesn't issue 1099s. Therefore, his employer cannot deduct the expense....or at least can't deduct it and have it stand in an audit.

 

[LdiJ]

FYI - i'm single, no dependants.

chitown, you say I can list entertainment as a tax write off? What kind of entertainment exactly and why?

thanks

No, you can't list entertainment as a tax write off.

If you were in the type of job where you had actual expenses to work, that your employer didn't cover, then as an independent contractor (someone who is self employed) you could deduct those expenses from your income. Entainment would apply (and only 50% of it at that) if you had to take clients out to lunch, for example, and had to spend your own money to do it. However that doesn't sound like what is going on here....it sounds like its a regular job....but your employer simply isn't reporting or withholding.

Since you are single, with no dependents, I would really recommend that you hold back 30%.