Dan Caplinger: So Max, it is a lengthy matter, however let me provide you with only a basic overview. When you could have a aspect gig, you had been handled as if you’ve got began your personal enterprise. Typically, the aspect gig shouldn’t be going to rent you on as an worker. In the event that they do, then it is a fairly easy scenario. You simply must deal with it the identical means that you just deal with your employment. You will get a W-2 from these of us. You will must report the revenue the identical means.
However most aspect gigs aren’t arrange the place you are an worker. As a substitute you are an impartial contractor. When you get any reviews of revenue in any respect, they will come on a special tax type. It is referred to as the 1099. Normally, it is 1099-MISC for miscellaneous revenue.
You are going to must report that as self-employed revenue. What which means shouldn’t be solely do it’s a must to pay revenue taxes on that, you additionally must cowl the cash that often your employer withholds out of your paycheck to go for social safety payroll taxes and for Medicare payroll taxes as properly. These quantities on the whole are 15.3 p.c of your self-employment revenue.
It is an enormous quantity. When you’re used to being employed, you are used to your employer doing that for you. You do not have with a aspect gig, anyone doing that for you. It’s important to deal with it your self.
That often means submitting estimated tax funds on a quarterly foundation to verify the IRS is glad, does not cost any curiosity or penalties. However yeah, it is a massive deal as a result of it is primarily you working your personal enterprise.