HapiMoney

Now that tax season is fully upon us (you’ve got about another 8 days if you haven’t already filed), there are always some latent questions.

One of the more confusing questions for some people (especially if you are self employed or have significant personal investments) is why you might need to pay an additional quarterly amount, vs just paying your taxes once a year.

For most people who solely rely on their day jobs to make money, this won’t apply since your employer should already withhold enough taxes to cover your income tax liability. Every paycheck, your employer takes money out, and then pays your taxes on your behalf (how kind!).

But if you are making money on the side, you will have an unfunded liability to the Federal Government…which sucks. The government, to make it’s own cash payments more regular, requires these people to make quarterly payments of what they estimate their unfunded liability would be.

So for example – lets say I make $50,000 per year, but I’ve got another side business (or investment) that brings in another $10,000. My employer will take off about 30% of the 50k, but I’ve still got 10k in income which needs to be reported. This 10k will add about $3,000 to the taxes you owe, and as such, I will need to pay $750 every quarter to make up for it.

Another, more automatic, route to go is by increasing the amount of withholding that your employer takes each month from your paycheck.

Happy tax season…and happy refunds to all of you (if you get them).