Paying taxes is fun isn’t it?
I tried to be responsible and start working on my taxes in February, and my first rough draft looked pretty promising. I wasn’t sure exactly how, but that first attempt at TurboTax made it look like I was in line for a few hundred bucks worth of refund. Still though, even with the stimulus programs, I expected to end up paying something so I gave it a second go over.
And that’s where I saw the crucial little detail that changed my tax status by a thousand bucks: The dumb number on the income forms actually means something!
See, I guess W2s are issued when an employer deducts and pays payroll taxes. 1099s on the other hand, don’t have any taxes removed so income received on those forms owes the full ~15% for Social Security, Medicare, etc. . .
Well, at least between the standard deduction and some of the costs of doing business online (hosting, internet, domain registrations, etc) can help bring down the percentage rate, but its not enough to get out of any taxes whatsoever.
So its kind of strange to me to be making so little money and still owing the government. But this is a good reminder that when they say “X% of people don’t pay income taxes,” those people are still paying federal taxes on their income through payroll. A lot of people are using the progressivity of the income tax to whine about people who don’t pay it, but almost everyone ends up paying some federal taxes on their income whether its cash out of pocket or through payroll with holding. In fact, a majority of Americans pay more for payroll taxes than they do for income taxes, so to ignore the payroll part and focus exclusively on the “Big I” Income tax is incredibly disingenuous. Apparently though, its incredibly effective because I’ve seen about three dozen articles making this or a similar claim.
Either way, be sure to check and double check those returns. The tax man seems to be targetting independent contractors this year, and the last thing any one wants is to invite an IRS agent over for an audit!