You pay the taxes on any extra income
Question: I have a full-time job in Honolulu where my employer takes care of all my deductions; but I'm about to take a part-time job with a company on the mainland where I'll be telecommuting. They are paying me as an "independent contractor" and not taking out taxes. Do I have to pay the government for Social Security or anything? What do I do about taxes? And since this is in another state, do I have to file an income tax return for that state next year? I'll be making about $1,000 a month.
Answer: From Glenn Ramel, consumer attorney at Legal Aid: As a self-employed individual, you are responsible for the self-employment (SE) tax. The SE tax rate is 15.3 percent, but you will be allowed to deduct half of your SE tax in figuring your adjusted gross income.
You have a number of options in paying the SE tax: First, you can increase your withholding at your full-time job to help cover the taxes incurred at your part-time job. Second, you can send estimated tax payments to the IRS. Last, you can pay your SE tax when you file your federal income tax return; but you could have penalties and/or interest if enough tax is not withheld during the year. You will most likely have to file an income tax return for that other state next year. Inquire with that state's taxing authorities about your filing responsibilities.
One last piece of advice: obtain a General Excise tax number from the State of Hawaii and pay your general excise taxes. Refer to www.irs.gov and www.eHawaii.gov for additional information on starting a business.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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