Estimated tax payment #3 due Sept. 15; Don't forget to figure SE taxes
Wednesday, September 14, 2011
It's tax filing time again for those of us with income that isn't subject to withholding. The year's third estimated tax payment is due Sept. 15.
You need to file a 1040-ES when you get income such as profits on asset sales or like me you're self-employed.
The estimated tax packet, which includes vouchers to send in if you snail mail your payments, contains a worksheet to help you figure your appropriate estimated tax total.
A lot of folks do a down-and-dirty estimate of their untaxed earnings. That's usually OK. As long as when you finally file your 1040 you're within $1,000 of what you owe, you generally won't face any underpayment penalty.
But if you're self-employed, you might want to throw in a few extra dollars to make sure you cover your self-employment taxes.
You remember these. They are the independent worker's equivalent of the payroll tax amounts taken out for Social Security and Medicare coverage.
And they are just one of the many tax issues a self-employed worker must consider, which is today's Weekly Tax Tip.
Figuring your SE tax amount: When you fill out the estimated tax worksheet, you'll find a line for self-employment taxes.
These are the taxes that go toward Social Security (old-age, survivors, and disability insurance) and Medicare (hospital insurance). When you're an employee, they might show up on your pay stub as FICA, or Federal Insurance Contributions Act, taxes withheld from your pay.
For those of us who are our own bosses, they are referred to as SE taxes because that's the name of the tax form, Schedule SE, on which they are reported when we file our annual returns. Some taxpayers might be able to file the simpler six-line Short Schedule SE. Details on both options are in the SE instruction book.
The most annoying thing about the SE tax is that you must pay both the employer and employee portions.
As a wage earner, only your half of the FICA tax comes out of your paycheck and your boss matches that amount. But since you're both the worker and the head honcho, you have to come up with both amounts.
You do, however, get to deduct the employer portion of SE tax payment when you file your tax return. It's part of the adjustments to income, also called above-the-line deductions, section at the end of the first page of the 1040.
But before you can deduct the employer-paid SE tax amount, you have to pay it.
SE tax rate reduced for 2011: One piece of good SE tax news for 2011 is that it's a bit smaller.
As part of the 2010 Tax Relief Act that became law at the end of last year, the employee portion of FICA was reduced by 2 percent. That same tax cut applies to self-employed taxpayers.
The SE tax rate is now 13.3 percent instead of 15.3 percent. Of the new, smaller SE amount 10.4 percent goes toward Social Security and 2.9 percent for Medicare.
The full 13.3 percent SE rate applies to the first $106,800 of your income. IF you make more than $106,800, the Social Security portion is not collected. But there is no income cut-off for the Medicare SE component.
You can do the calculations by hand using the form and a calculator. The 2011 SE tax form is still in draft, but it gives you an idea of what you'll owe.
If you use tax software, it will run the SE numbers for you. You also can get an idea of your SE tax via this online calculator.
Yes, it's a pain, but it's part of being your own boss. And if you don't pay your proper SE taxes, in addition getting on the IRS' bad side, you'll cheat yourself out of eventual Social Security and Medicare benefits.
When to pay: All of this additional SE calculating is part of the regular 1040-ES filings.
As I've noted in prior postings, the IRS prefers us to come up with an annual estimated amount and then pay it in four equal installments:
| Estimated tax due | For income received from |
| April 15 | Jan. 1 through March 31 |
| June 15 | April 1 through May 31 |
| Sept. 15 | June 1 through Aug. 31 |
| Jan. 15 (of the next year) | Sept. 1 through Dec. 31 |
The estimated deadlines follow the same IRS rules when it comes to a due date on a Saturday, Sunday or legal holiday; that is, you have until the next business day to make the payment.
And if you send in a paper form with a check, having your payment envelope postmarked by the due date counts as timely filing.
So if you haven't already, figure out your estimated tax payment so you can meet tomorrow's deadline. And don't forget those self-employment taxes.
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