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Q&A: Independent contractors face a wealth of tax consequences

January 28, 2019 By Liz Weston

Dear Liz: My son was recently hired in his dream job, but his employer has classified him as an independent contractor rather than as an employee. This would be his first time drawing pay without all the taxes, benefits, insurance and so on taken out. I’m afraid he’s only seeing the good wage and not the flip side.

He’s a newlywed and doesn’t need his mama telling him what’s what. I thought if I sent him this “anonymous” letter that appeared in your column, that advice would be coming from you and he might just listen!

Answer: If your son doesn’t listen, that dream job could turn into a tax nightmare.

Tax pros often suggest their self-employed clients put aside half of what they earn to cover taxes and other obligations. Independent contractors have to pay both the employer and employee portion of Social Security and Medicare taxes, or roughly 15.3% instead of the 7.65% regular workers pay. That’s in addition to whatever federal, state and local income taxes he’ll owe.

He’s now required to make quarterly estimated tax payments because ours is a “pay as you go” system. Employees typically have those taxes withheld, but independent contractors must make quarterly estimated tax payments by Jan. 15, April 15, June 15 and Sept. 15. (The deadlines are moved to the following Monday if those dates fall on a weekend.) If he waits until he files his annual tax return to pay, he’ll probably owe penalties.

He also may need to register his business with his city or county and get a tax registration certificate.

If he doesn’t get health insurance through his spouse, he’ll need to find a policy, probably through an Affordable Care Act exchange. He also should save at least something for retirement. Although the self-employed have several good options for retirement savings, including SEP IRAs and solo 401(k)s, he’ll have to do without the “free money” that company 401(k) matches represent.

Business insurance may be another concern. He may need coverage to protect against lawsuits, disabilities and other potential setbacks.

Your son would be smart to hire a tax pro, such as an enrolled agent or CPA, to help him navigate this brave new-to-him world of self-employment.

Filed Under: Q&A, Taxes Tagged With: independent contractor, q&a, Taxes

Friday’s need-to-know money news

January 25, 2019 By Liz Weston

Today’s top story: This winter, your credit should freeze, too. Also in the news: Nerd100 – Celebrating the best-of-the-best personal finance products, the best student loan refinance companies, and finding hospital price lists.

This Winter, Your Credit Should Freeze, Too
Surviving the credit breaches.

Nerd100: Celebrating the Best-of-the-Best Personal Finance Products
See who made the list.

Best Student Loan Refinance Companies
The results are in.

Hospitals must list prices online — now all you have to do is find them
They don’t make it easy.

Filed Under: Liz's Blog Tagged With: best personal finance products, Credit, credit freeze, data breach, hospital prices, Nerd100, student loan refinance companies

Thursday’s need-to-know money news

January 24, 2019 By Liz Weston

Today’s top story: The average 401(k) balance by age. Also in the news: Taking the next step with your student loans, 3 money tasks to do right now, and what to do with all the tax documents you’re receiving.

The Average 401(k) Balance by Age
How do you match up?

Take the Next Step With Your Student Loans in 2019
Setting small goals.

3 Money Tasks You Need to Do Right Now
Starting the year off right.

What to Do With All the Tax Documents You’re Getting Right Now
What to keep and what to toss.

Filed Under: Liz's Blog Tagged With: 401(k), money tasks, Retirement, retirement savings, Student Loans, tax documents

Wednesday’s need-to-know money news

January 23, 2019 By Liz Weston

Today’s top story: 3 colleges that help you handle student debt. Also in the news: How one couple purchased a home in Oakland, Marriott/SPG cards are getting a makeover, and how to get reimbursed for old medical expenses with your HSA.

3 Colleges That Help You Handle Student Debt
You’re not alone.

How I Bought a Home in Oakland
One couple’s story.

Bonjour, Bonvoy: Marriott, SPG Cards Getting New Names, Perks
New goodies.

Get Reimbursed for Years-Old Medical Expenses with Your HSA
No time limit on reimbursements.

Filed Under: Liz's Blog Tagged With: HSA reimbursement, Marriott, real estate, rewards cards, SPG, student debt

Tuesday’s need-to-know money news

January 22, 2019 By Liz Weston

Today’s top story: A beginner’s guide to budget travel. Also in the news: Get up to 75% off Spirit Airlines round-trip flights, 10 tips for family budget travel, and questions to ask before taking a tax refund advance.

A Beginner’s Guide to Budget Travel
It’s all in the planning.

Flight Deal: Get Up to 75% off Spirit Airlines Round-Trip Flights
Fly the cheaper skies.

10 Tips for Family Budget Travel
Flexibility is key.

Before Taking a Tax Refund Advance, Ask These Questions
Don’t jump the gun.

Filed Under: Liz's Blog Tagged With: budget travel, family travel, Spirit Airlines, tax refund advance, travel

There’s always a next recession, so be prepared

January 22, 2019 By Liz Weston

Recessions are like natural disasters: They’re inevitable, but smart preparation may reduce the impact on you.

The U.S. economy has grown steadily since emerging from the “Great Recession” in June 2009, but expansions can’t continue forever, and this one is already the second-longest on record. Only the expansion from March 1991 to March 2001 lasted longer.

Recessions occur when growth stops and the economy starts to shrink. They vary in severity and length, but often jobs disappear, incomes decline and lenders make it harder to qualify for credit.

Knowing what may be coming can help you fortify your finances to withstand a possible slowdown. In my latest for the Associated Press, some steps to consider.

Filed Under: Liz's Blog Tagged With: budget, Credit Scores, recession, tips

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