Taxes owed for contracting in MN

Hello BN34,

Thank you for your question. I am happy to assist you.

First question: will you get penalized if you don’t pay estimated taxes? Yes, you may be charged a penalty if you do not pay enough taxes through your withholding on form W-2 and estimated taxes. Even though you have additional taxes taken out of your paycheck from your full-time job, the total tax liability that you owe may be higher especially if you performed contract work. Being self-employed (SE) means that you must pay self-employment tax each year if your net earnings from self-employment are $400 or more. The SE tax is 15.3% (12.4% for Social Security and 2.9% for Medicare) on the annual net income you derived from your business. Higher income business owners must pay an additional 0.9% on Medicare tax.

In addition, SE people must pay income taxes on your personal taxes (these taxes are called “pass-through taxes).

Second question: how do you estimate how much you are going to owe? You can use the following links to get more information on estimated taxes and how to calculate the tax withholding amount:

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

https://www.irs.gov/individuals/tax-withholding-estimator

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

Please let me know if this answers your questions, or if I can be of further assistance.

Thank you!

Shirleyh88

HI,

Great job BN34 for thinking of this before your tax filing is due!  

Whether you get penalized or not will depend on whether you paid in enough taxes in a timely manner.  The IRS doesn't care if the money comes in from W-2 withholding or estimated taxes, just as long as they get the amount they want in the timeline they want it!

The IRS knows that this is hard to figure out, so they give you a "Safe Harbor" to avoid underpayment penalties.  This article does a great job of explaining your responsibilities and what the Safe Harbor to avoid penalties is.

As to how much tax you may owe, TurboTax has an estimator to help you figure that out.  You can find that here.

You mentioned MN, but you didn't refer to paying in additional taxes there. Here is a link to MN's DOR page that addresses estimated taxes.  You may want to think about those, as well, if you haven't already.

Hope this helps! Please cheer if it does!

Best,

Karen