Question

Earned 8k in 2022, self-employed. Owing almost $600 right now. Is this normal? Added all expenses I could think of, rest of money needed to survive.

Forum|Forum|3 years ago
March 2, 2023
1 reply
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My estimated tax due right now is about $600. With adding in the over $100 to pay for TurboTax Self-Employed, I'll be out over $700 to file these taxes. I got a job at the end of last year (independent contractor), so it's my first time filing taxes; I understand there is a self-employment tax, but I had no idea so much could be taken from such a small amount. For 2023, I'm expecting to make about 25k, so I am now terrified of how much I'll owe next time. I am obviously not in a position to give away $700; what I didn't spend on my work was used to barely make it through daily life. Am I doing something wrong, or do I really owe this much?

TurboTax Self Employed Online

JohnB5677

Unfortunately, your concerns are real. If that was all of your income, with the standard deduction you didn't pay any income taxes. All of the $600 was for self-employment tax.

I suggest that you pay quarterly estimated taxes for 2023.

Please see this article Estimated Taxes: How to Determine What to Pay and When

These are the Standard deductions for 2022. This is deducted from income before you pay income taxes.

For single taxpayers and married individuals filing separately, the standard deduction is $12,950 in 2022.

For married couples filing jointly is $25,900, and

For heads of households, the standard deduction is $19,400.

The self-employment tax rate is 15.3%. That rate is the sum of 12.4% for Social Security and 2.9% for Medicare.

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K

kt_1989Author

Thank you very much for your reply. What a nasty surprise! But I understand your explanation. I did notice I was originally due to pay about $1000 for the self-employment tax, but it was lowered to $600 by the EIC -- is there a way you recommend to estimate how much the EIC will be?

Similarly, about the standard deduction -- does that mean, if my income is over the standard deduction amount, I will need to pay income taxes as well?

I am estimating to make about $20-25k this year. After this experience, I want to make sure I better anticipate what I'll owe. I can't figure out if an income of $20-25k (all self-employed) means I'm required to do the quarterly payments, or if I can just set aside a percentage of my income throughout the year to hopefully have enough when it's time to file.

I know these are ignorant questions. I am trying to understand the article you linked, but it just seems to be over my head -- I apologize.

Thank you again for your time, I really appreciate it.

V

Vanessa A

Is there a way you recommend to estimate how much the EIC will be? Yes, you can use this table to estimate what your EITC will be. However, if your income would increase or decrease, your estimate could end up being higher or lower. Obviously, if it is higher, that would not be an issue. But, if it is lower, say you are expecting to get $3,733 (head of household with one child) and you end up earning $10,000 more than you predicted, then your credit could drop to $1,353. This would leave you with a shortfall of close to $2,400 and you would end up having an underpayment penalty on your 2023 return. However, if you are single with no kids, the maximum EITC you can receive is around $600 ($560 for 2022, increases yearly) but at $25,000 you would not be eligible.

I can't figure out if an income of $20-25k (all self-employed) means I'm required to do the quarterly payments, or if I can just set aside a percentage of my income throughout the year to hopefully have enough when it's time to file. The IRS requires quarterly payments if you expect to owe more than $1,000 for the year or if you owed tax this year. Since you do owe tax this year and expect to owe more than $1,000 next year, you will need to make estimated payments. If your total tax due for this year was $1,000, if you pay at least that much in quarterly payments, you would be exempt from the penalty by filing form 2210.

Similarly, about the standard deduction -- does that mean, if my income is over the standard deduction amount, I will need to pay income taxes as well? Yes, if your income is over your standard deduction you will also need to pay regular income tax in addition to self-employment tax. At $25k, for 2023, you will be in the 12% tax bracket for your personal income. You calculate this by taking your earnings and subtracting the standard deduction which for 2023 will be $13,850.

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