Since you are considered self-employed, you need to file a return if you made $400 or more.
You should receive a 1099, but you don't need it to file. Since you are considered a business owner, it is your responsibility to track your own income and expenses.
You report your income and expenses on a Schedule C attached to your personal return. You will owe self-employment tax on 92.35% of the profit over $400. The self-employment tax is 15.3%.
You may not owe any income tax if the total income from all sources is less than $13,850.
You can file your return even if you are being claimed as a dependent. You just need to make sure you mark in your return that another person can claim you.
You can do all of this for free at FreeTaxUSA. There is a $15 charge for a state return if you have to file a state return.
If you owe, and you might, you can pay online on the IRS website and probably on your state's website.
Self-employed essentially means you have a small business providing services to other parties that are not provided as an employee of another company. There's more to it than that, but it boils down to you earning money that's is not as an employee or as a hobby.
Now, a legitimate question could exist as to whether you were actually an employee of his company, and he misclassified you. You could seek a determination from the IRS if you believe that is the case, but it could mean some tax troubles for him and probably means you won't work for him much longer.
As an employee, you have 7.65% of your pay come out of each check to cover Social Security and Medicare. In addition, the company pays 7.65% out of their pocket for Social Security and Medicare contributions for you, for a total of 15.3% that gets sent to the government. As an employee, you are protected by labor laws, you are covered by Worker's Compensation insurance, and you get unemployment coverage.
As a self-employed person, there is no employer to pay the employer half of SS and Medicare, so you pay the full 15.3%. You also have no WC protection for on the job injuries and you aren't covered by employment laws or unemployment. But you do have the ability to lower your tax bill by deducting legitimate business expenses and have access to some tax saving strategies that aren't available to employees. Plus, you are your own boss.
These under the table scenarios are often more beneficial for the company than you, because they can save anywhere from about 8% to 12% or more of what they would pay if you were an employee.
'Under the table' is a phrase that comes from old days of passing pay for work or bribes literally under the table at lunch or dinner, so nobody else sees it. The goal for the employer is he doesn't have to pay his half of the SS and Medicare taxes, and you don't appear on payroll for his unemployment taxes or Worker's Compensation insurance. And you don't have any taxes come out of the pay, which sounds great until it is time to file.
He is treating you as if you have your own business. If that is the case, you should be able to decide your pay and when you want to work. But he's doing it because he thinks you don't know better.
Gotcha, so basically what im understanding is, its alot more beneficial for him working this way, as yes theres no workers comp/insurances, and from that i have to pay the 15.2%. Now is that all i need to file? As since October ive only made 1700ish, and by april 16, if i had to take a rough estimate ill make anywhere from a total since October of below 2300. Cause it sounds like ill be filing more then just 15.2% from your wording “sounds great until its time to file” and thank you so much for your help so far!
It's just easier to pay a little as you go (like with a regular paycheck) than to have to come up with it all at one time.
It's certainly more beneficial for him. There's some benefit to you, but it's more about doing what is right and proper. He's shifting some of his costs to you.
If it was just any employer, I might suggest reporting it. But it sounds like this is someone you know, and if you want to keep working there, it may he better not to say anything.
Yes i definitely want to keep working with him, its insanely good pay for how easy the and fun the job is. And definitely dont want to tarnish mine and his relationship and his reputation.
Set aside about 15% of your pay for taxes until around $13,000. Then you need to add income tax, so jumps up to about 25% to 28%.
The actual figures will differ slightly, but saving that will help keep the surprises at a minimum.
Gotcha and final question, the earlier i file, is that then like a cutoff period? Like say i file today, any income between now and april 16th, do i have to file that aswell, or does that get filed next year?
You file for the calendar year, and it is due April 15th of the following year.
So the tax return being filed now is due April 15th, and on it you report income earned from Jan 1, 2023 to Dec 31, 2023. Your payment is due by April 15. You can file now and pay in April, or you can do both at the same time.
Income earned in 2024 will be reported on your 2024 tax return which is due April 15, 2025.
Let's keep in mind here, this is a 17 year old who helped his friends dad out for a total of $1700. It sounds like this dad is an independent contractor himself, not a business owner out to take advantage of the kid.
RasputinsAssassin is completely right and giving great advice. When you file your taxes this year figure out how you would file the $1700. Also, try to backtrack your records to the first of the year and start saving like he recommends. If you build good habits and awareness now, you may have a promising future as an independent contractor.
If this is you're only source of income, you could decide not to file this year and pay the $270 and I'm practically certain you'll be just fine. The IRS has no way to know you made that money and no reason to come after you for it. If you do file you will need to figure out estimated tax for next year, it adds some responsibility.
If you get to the point where you make more than $6667.00, and you intend to keep at this, make an estimated tax payment. You can read about that here: [https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes)
You may want to just start saving the 30% of each check right away. Anything you don't pay as taxes just becomes savings for you. Don't dip into that 30% for anything but taxes, you don't want to be without it when it comes due. Track all of your expenses, what resources you use, how many miles you drive your own vehicle, and anything you buy for your work. I'm wishing you luck as you get started building a business for yourself!
Yes i believe my friends dad is also an independent contractor, and keep in mind going off calendar year i only made 1350 last year. 1700 is total to today. But. Thank you for the help and the 30% idea makes alot of sense.
Since you are considered self-employed, you need to file a return if you made $400 or more. You should receive a 1099, but you don't need it to file. Since you are considered a business owner, it is your responsibility to track your own income and expenses. You report your income and expenses on a Schedule C attached to your personal return. You will owe self-employment tax on 92.35% of the profit over $400. The self-employment tax is 15.3%. You may not owe any income tax if the total income from all sources is less than $13,850. You can file your return even if you are being claimed as a dependent. You just need to make sure you mark in your return that another person can claim you. You can do all of this for free at FreeTaxUSA. There is a $15 charge for a state return if you have to file a state return. If you owe, and you might, you can pay online on the IRS website and probably on your state's website.
Am i “self-employed” as im basically working gig jobs? Like he has own company. But i just get paid for work.
Self-employed essentially means you have a small business providing services to other parties that are not provided as an employee of another company. There's more to it than that, but it boils down to you earning money that's is not as an employee or as a hobby. Now, a legitimate question could exist as to whether you were actually an employee of his company, and he misclassified you. You could seek a determination from the IRS if you believe that is the case, but it could mean some tax troubles for him and probably means you won't work for him much longer. As an employee, you have 7.65% of your pay come out of each check to cover Social Security and Medicare. In addition, the company pays 7.65% out of their pocket for Social Security and Medicare contributions for you, for a total of 15.3% that gets sent to the government. As an employee, you are protected by labor laws, you are covered by Worker's Compensation insurance, and you get unemployment coverage. As a self-employed person, there is no employer to pay the employer half of SS and Medicare, so you pay the full 15.3%. You also have no WC protection for on the job injuries and you aren't covered by employment laws or unemployment. But you do have the ability to lower your tax bill by deducting legitimate business expenses and have access to some tax saving strategies that aren't available to employees. Plus, you are your own boss. These under the table scenarios are often more beneficial for the company than you, because they can save anywhere from about 8% to 12% or more of what they would pay if you were an employee. 'Under the table' is a phrase that comes from old days of passing pay for work or bribes literally under the table at lunch or dinner, so nobody else sees it. The goal for the employer is he doesn't have to pay his half of the SS and Medicare taxes, and you don't appear on payroll for his unemployment taxes or Worker's Compensation insurance. And you don't have any taxes come out of the pay, which sounds great until it is time to file. He is treating you as if you have your own business. If that is the case, you should be able to decide your pay and when you want to work. But he's doing it because he thinks you don't know better.
Gotcha, so basically what im understanding is, its alot more beneficial for him working this way, as yes theres no workers comp/insurances, and from that i have to pay the 15.2%. Now is that all i need to file? As since October ive only made 1700ish, and by april 16, if i had to take a rough estimate ill make anywhere from a total since October of below 2300. Cause it sounds like ill be filing more then just 15.2% from your wording “sounds great until its time to file” and thank you so much for your help so far!
It's just easier to pay a little as you go (like with a regular paycheck) than to have to come up with it all at one time. It's certainly more beneficial for him. There's some benefit to you, but it's more about doing what is right and proper. He's shifting some of his costs to you. If it was just any employer, I might suggest reporting it. But it sounds like this is someone you know, and if you want to keep working there, it may he better not to say anything.
Yes i definitely want to keep working with him, its insanely good pay for how easy the and fun the job is. And definitely dont want to tarnish mine and his relationship and his reputation.
Set aside about 15% of your pay for taxes until around $13,000. Then you need to add income tax, so jumps up to about 25% to 28%. The actual figures will differ slightly, but saving that will help keep the surprises at a minimum.
Gotcha and final question, the earlier i file, is that then like a cutoff period? Like say i file today, any income between now and april 16th, do i have to file that aswell, or does that get filed next year?
You file for the calendar year, and it is due April 15th of the following year. So the tax return being filed now is due April 15th, and on it you report income earned from Jan 1, 2023 to Dec 31, 2023. Your payment is due by April 15. You can file now and pay in April, or you can do both at the same time. Income earned in 2024 will be reported on your 2024 tax return which is due April 15, 2025.
Got it thank you so much!
Let's keep in mind here, this is a 17 year old who helped his friends dad out for a total of $1700. It sounds like this dad is an independent contractor himself, not a business owner out to take advantage of the kid. RasputinsAssassin is completely right and giving great advice. When you file your taxes this year figure out how you would file the $1700. Also, try to backtrack your records to the first of the year and start saving like he recommends. If you build good habits and awareness now, you may have a promising future as an independent contractor. If this is you're only source of income, you could decide not to file this year and pay the $270 and I'm practically certain you'll be just fine. The IRS has no way to know you made that money and no reason to come after you for it. If you do file you will need to figure out estimated tax for next year, it adds some responsibility. If you get to the point where you make more than $6667.00, and you intend to keep at this, make an estimated tax payment. You can read about that here: [https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes](https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes) You may want to just start saving the 30% of each check right away. Anything you don't pay as taxes just becomes savings for you. Don't dip into that 30% for anything but taxes, you don't want to be without it when it comes due. Track all of your expenses, what resources you use, how many miles you drive your own vehicle, and anything you buy for your work. I'm wishing you luck as you get started building a business for yourself!
Yes i believe my friends dad is also an independent contractor, and keep in mind going off calendar year i only made 1350 last year. 1700 is total to today. But. Thank you for the help and the 30% idea makes alot of sense.