question about paying estimated taxes

Posted by Mark Bole on June 14, 2009, 9:37 am

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Phillip Marti wrote:

> "Jane" wrote:

>> My son-in-law earns about $500 a month. For some reason his employer

>> won't withhold any taxes.

Let me try again, subsequent to other responders clarifying some bad
assumptions I made -- what is the reason?

-Mark Bole

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Posted by YvonneD on June 14, 2009, 10:11 pm

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> Phillip Marti wrote:

> > "Jane" wrote:

> >> My son-in-law earns about $500 a month. For some reason his employer

> >> won't withhold any taxes.

> Let me try again, subsequent to other responders clarifying some bad

> assumptions I made -- what is the reason?

> -Mark Bole

OK. Clearly I didn't give you enough information.

He is treated as self employed. Same as Independent Contractor,
right? They have no children. They are in their early 40s.

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Posted by Phillip Marti on June 15, 2009, 6:50 am

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"YvonneD" wrote:

> He is treated as self employed. Same as Independent Contractor,

> right? They have no children. They are in their early 40s.

That gives us enough to do some rough calculations. They won't owe any
income tax for 2009. His self-employment tax will be roughly $1,000. After
applying the Earned Income Credit and the Making Work Pay Credit they'll owe
roughly $250. So, the answer to your original question is no, they don't
need to worry about estimated tax payments.

Note the repeated use of variations on "rough." This is an approximation,
but it's not a SWAG. If anyone wants to slog through more precise
calculations, have at it.

--------------
Phil Marti, VITA Volunteer
Clarksburg, MD

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Posted by Mark Bole on June 14, 2009, 10:12 am

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Phillip Marti wrote:

> "Jane" wrote:

>> My son-in-law earns about $500 a month. For some reason his employer

>> won't withhold any taxes. My daughter has MS and is on SSDI which is

>> exempt from tax.

> A correction here. It's not important now, but hopefully someday they'll be

> in better financial shape, and it could matter. Social Security disability

> (SSDI) benefits are taxed the same as Social Security retirement benefits.

> (At their current income level, none of it would be taxed.) SSI is

> tax-exempt.

Thank you for the clarification. The question for the OP would be, is a
Form 1099-SSA received at the end of the tax year? For SSDI, it would
be, for SSI, no.

> As someone already mentioned, it sounds like he's being treated as an

> independent contractor. This may or may not be correct, but if he is an IC,

> he's going to owe self-employment tax even though there won't be any income

> tax due.

He won't owe any SE tax if his net profit from self-employment was not
much more than $400, but then he will need to have appropriate records
to claim his business expense deductions, such as mileage.

In short, everything, from the taxes themselves to preparation of the
return, is going to much more burdensome if he is not an employee.

> Even if he's an employee he's going to owe the employee's portion

> of Social Security/Medicare tax.

If his employer is not taking out Social Security/Medicare, I'd
recommend reporting it to IRS (or SSA, whoever) now, or else finding
another job.

> Someone also mentioned the Earned Income Credit. Without knowing their ages

> and whether they have children, we don't know whether they'd qualify or not.

> If they are childless, even if they qualify it won't be enough to pay the

> self-employment tax.

That's why I said "depending on a few other factors" <grin>. If
self-employed, even with no children, at their income level, EIC will
pay at least half the SE tax (which makes sense, since as I've been told
EIC was designed to cover the employee's half).

> I suggest he find a low-income tax clinic in his area and seek assistance.

> If social service agencies can't direct him to one, try the IRS.

By all means, but aren't many of them closed this time of year? If the
OP will provide some more information, an answer can be provided here, too!

-Mark Bole

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<< The foregoing was not intended or written to be used, >>
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Posted by Phillip Marti on June 14, 2009, 12:48 pm

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"Mark Bole" wrote:

>> I suggest he find a low-income tax clinic in his area and seek

>> assistance. If social service agencies can't direct him to one, try the

>> IRS.

> By all means, but aren't many of them closed this time of year?

We no doubt have an embarrassment of riches here in the DC area, with law
schools everywhere, prominent law firms itching to notch their pro bono
belts, and lots of savvy on getting government grants. In fact, I'm
scheduled to work at an off-season clinic a week from Saturday.

--------------
Phil Marti, VITA Volunteer
Clarksburg, MD

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
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