Whether you are an employee or self-employed, there are several variables to consider when determining whether you are paying enough federal income taxes throughout the year. Your gross income, filing status and number of dependents are common factors that impact your taxes during the year. Other factors that can change your tax situation is the purchase of a home or a major medical expense.
Remember that one document you were asked to complete when you got your job? As an employee, making sure your W4 form is completed properly will help ensure you are withholding the correct amount of taxes from your paychecks. Some people never look at the W4 form after starting their job and that could be a mistake. The W4 form, also called an “Employee’s Withholding Certificate,” helps to determine how much money to withhold from your paychecks. You can update your W4 at any time and it should be reviewed regularly in case a change occurs during the tax year that has an impact on your tax situation.
If you click our Resources page we have a link to a questionnaire with a W-4 calculator to help you figure out how much taxes to withhold from your paychecks based on your tax situation.
Self-employed individuals may not receive regular paychecks and therefore may not need to complete form W4 for withholding taxes. Self-employed individuals are responsible for making estimated tax payments to cover their tax liability if taxes are NOT being withheld from their gross wages. Estimated tax payments are meant to cover an individual’s federal income tax liability and self-employment tax liability. Self-employment taxes are payments made for Social Security and Medicare taxes.
There is a penalty for underpayment of estimates taxes by self-employed individuals. Here is how to avoid the tax penalty:
We hope these tips help to put you at ease during tax time and if you ever have any questions, please be sure to reach out to Rocket Tax & Professional Services for more information. Call us at 713-900-9366 now or click here to request a consultation.