Tara is 32. She works full-time, where her employer deducts taxes from her pay, and freelances part-time, where she is responsible for paying taxes. While Tara appreciates the extra income, she wonders about any tax traps to avoid.
Tara is working hard to meet multiple financial goals, and she wants to make sure she doesn’t run afoul of income tax rules. Her accountant gave her two choices for meeting tax obligations.
The first choice was to figure out her untaxed side hustle income and ask her full-time employer to deduct an extra amount from her pay to meet this obligation. The other was to simply pay any additional tax liability quarterly. If she does neither and owes federal income taxes at year-end, Tara may have to pay a penalty and interest on the unpaid tax.
As an independent worker in her part-time gig, Tara should receive a 1099 form if she earns more than $600 in a given year. She can use this as a guide to pay the income taxes. Tara will also need to calculate FICA taxes for Social Security and Medicare on her part-time income, both as an employer and employee.
Eventual taxation on her freelance income will depend on how this side gig is legally structured. Talk to a tax pro to learn more.
Client Profile is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you.
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