If you are working as a household employee, it is important to understand what taxes you will need to pay. It is easy to feel confused about what you need to pay and when. This is especially true if your employer does not withhold income taxes from your paychecks.* Here are some important tips.
#1: Determine your taxable income.
In order to know what you need to pay, you must estimate your taxable income for the year. To get this number, you will need to reduce your gross income by all of the deductions you think you will claim on your taxes. The amount of deductions and tax credits will reduce the amount of tax you owe
#2: Calculate what you owe.
Take a close look at your income and determine if you need to make quarterly tax payments. Then, use IRS Form 1040-ES to calculate the amount of each payment that needs to be made through the year. The payments are calculated based on the estimated taxable income for that year. You will need to make sure that you set aside enough money from each check to cover the quarterly payments. There are four payment deadlines spread out throughout the year, on April 15th, June 15th, September 15th, and January 15th.
#3: Avoid penalties.
Make sure you pay your estimated tax payments on time and in full. If you don’t, you could be subject to interest charges. For example, if your payment is $1,000 and you only pay $500, then a penalty could accumulate on the $500 underpayment until the time that it is paid in full.
If you still are not sure how this will work for your specific situation, or how to talk to your employer about withholding in the future, contact our experienced team of payroll specialists at HomeWork Solutions. We can help get your questions answered so you do not have tax surprises when tax season rolls around.
*For household employees in Arizona, employers are not allowed to withhold income taxes.