Knowledge is power.
We empower our clients.

Get Started Now
<< Back to Helpful Tips

Are You Self-Employed? What to Know About Tax Time

These days, a growing number of workers do not have traditional full-time salaried positions. In fact, McKinsey found that approximately 20% to 30% of the working-age population in Europe and the U.S. engage in some form of independent work.

If you’ve made or are making a transition to self-employment, in essence, you have become your own Human Resources and Payroll Department. Those notes on your old paystubs that you may have paid little attention to are likely tax liabilities for which you are now directly responsible.

Most workers are subject to the “Pay-As-You-Go” or (PAYG) system, where income tax is taken from each paycheck and sent to the Internal Revenue Service. It’s no different for the self-employed. The IRS expects you to make quarterly estimated payments if you anticipate owing $1,000 or more on your taxes.

Set Aside Money via a Separate Account

For some, being self-employed may require a little extra planning. Typically, on payday, our checking accounts are flush with cash so we buy groceries, pay the mortgage or rent, and spend some money going out to dinner and drinks with friends. When you are self-employed, draining your account following each pay period could cause you to end up short when it comes to pay quarterly taxes. And, an inability to pay on time or not at all means a late fee or a failure-to-pay penalty from the IRS.

Prevent this situation from happening to you! One way to make sure you can make each payment on time and in full is to set up a separate account specifically for funding estimated taxes. This way, each time you get paid, a part of your tax payment is deposited to this account. Set it and forget it so you don’t end up short!

How Much Should be Set Aside?

A good starting point to determine how much should be put in a separate account for your estimated tax payment is in the range of 30% of each paycheck. It may seem like a high percentage, but you need to account for Social Security, Medicare, federal and any state tax liabilities. Check with your tax adviser to determine the appropriate amount to set aside for your individual situation.

For W2 employees, Social Security and Medicare taxes are shared between the employer and employee. When you are self-employed, you function as both and are taxed as such. For 2018, the tax will be at a minimum rate of 15.3% and can increase if certain income levels are met.

When am I Expected to Pay?

Here’s a handy chart to determine when you need to pay these taxes. The following is the 2019 schedule from the IRS:
m-0051-irs-due-dates-01
NOTE: If the 15th falls on a weekend or a holiday, then the due date is the next weekday.

Find a Trusted Advisor who Relates to You

Whether you’ve been an independent contractor for years or are newly self-employed, you don’t have to figure this out alone. At Jemma Financial, our knowledgeable financial advisors can help you open an account and create a plan to meet your financial goals.

Log In to Your Existing Account Get Started Now

Need assistance? Call 855.662.2121 or email info@jemmafinancial.com

You are now leaving Jemma Financial

Yes, I would like to leave No, I would like to stay

Important Notice

You are now leaving the Jemma Financial Services website and will be entering the Charles Schwab & Co., Inc. (“Schwab”) website.

Schwab is a registered broker-dealer, and is not affiliated with Jemma Financial Services or any advisor(s) whose name(s) appear(s) on this website. Jemma Financial Services is/are independently owned and operated. [Schwab neither endorses nor recommends {Name(s) of Investment Management Firm(s)}, unless you have been referred to us through the Schwab Advisor Network®. (This bracketed language is for use by Schwab Advisor Network members only.)] Regardless of any referral or recommendation, Schwab does not endorse or recommend the investment strategy of any advisor. Schwab has agreements with “Name(s) of Firm(s)” under which Schwab provides Jemma Financial Services with services related to your account. Schwab does not review the Jemma Financial Services website(s), and makes no representation regarding information contained in the Jemma Financial Services website, which should not be considered to be either a recommendation by Schwab or a solicitation of any offer to purchase or sell any securities.