Tax Question

[Rebookie]

I am doing the at home incoming sales job. I am considered and independent contractor and I will need to take my own taxes out. I won't be making a ton of money or anything. My questions is "What percentage should I be saving for taxes out of each check?"

[Greebo]

What will your gross annual household income be?

[Rebookie]

I won't actually know! I am paid on a per call basis.. It's up to me to make a little or a lot. I was thinking that maybe 20% would be ok?

[Greebo]

Ok - what is your *current* gross annual household income? And you're married, right?

The reason I ask is because taxes work on a scale - the more you make, the more you need to set aside as you climb the ladder.

2010 Brackets
Tax Rate - Married Couples Filing Jointly - Most Single Filers
10% - Not over $16,750 - Not over $8,375
15% - $16,750 – $68,000 - $8,375 – $34,000
25% - $68,000 – $137,300 - $34,000 – $82,400
28% - $137,300 – $209,250 - $82,400 – $171,850
33% - $209,250 – $373,650 - $171,850 – $373,650
35% - Over $373,650 - Over $373,650

So if you're married making 50,000 now, then you need to set aside 15% of all additional income UNTIL your total income hits $68,000. Once you hit $68,000 you now need to set aside 25% - but not on the stuff you already set aside - ONLY on the additional income.

So if you made 100,000 you would owe:
10% of 16750 +
15% of (68000-16750) +
25% of (100000-68000)

so 1675 + 7688 + 8000

So if your household income is < 68,000, 20% is too much. If it's over $68,000, it's not enough.

[Rebookie]

I am married and my hubby grosses 45K.

[Rebookie]

Ok that makes a lot of sense! =D

[Greebo]

Ok so 15% until you gross $23,000, then 25% - and if you end up grossing $92,300 - 28% and I wanna know what you do!!!

[TigerGirl1226]

Greebo, thanks for this info. I am considering taking on a part time or possibly full time job when DD goes to Pre-3 in the Fall and I will make sure I don't jump us up to 28%. Eeek!

[Rebookie]

Mr. Greebs don't hold your breath! LOL

=-D

[Greebo]

Greebo, thanks for this info. I am considering taking on a part time or possibly full time job when DD goes to Pre-3 in the Fall and I will make sure I don't jump us up to 28%. Eeek!

Why on earth wouldn't you want to jump up to 28%???

[TigerGirl1226]

Why on earth wouldn't you want to jump up to 28%???

My thinking is that we would be on the very low end of the bracket so if I can keep us on the high end of 25% it would be better, right?

[Greebo]

My thinking is that we would be on the very low end of the bracket so if I can keep us on the high end of 25% it would be better, right?

No, it wouldn't.

Let me walk you through it again:
You're married. From $0 earned to $16,750 earned you pay taxes of 10%. So if you make $10,000, you pay $1,000. If you make $16,750 you pay $1,675.

Now you move up to $16,751. Your tax bracket increases to 15% - but only on the money OVER $1,6750. So you pay 15% on your gross income MINUS the floor of the bracket. $16,751 - $16,750 = $1.00. $1.00 * 15% = $0.15. So your taxes went from $1,675 to $1,675.15

You're thinking the % applies to the full amount earned. If that were true then that $1.00 would cause your taxes to jump from $1,675 (10% of $16,750) to $2,512.65 (15% of $16,751) - a nearly $700 increase.

So if you go up to 28%, you only pay 28% on what you earned OVER $137,300. NOT the full $137,300.

Of course, none of this takes AMT into consideration - I don't fully understand that one but I need to - I may get hit with it soon...

[TigerGirl1226]

You're right, I was thinking the brackets were real cut and dry. If as a family, we moved, even slightly into the next bracket that we would be fully taxed with the same percentage.

I think I'm starting to understand...

[monkeywrangler71]

Do you not pay income tax to your states as well? Or is that included already?

And do you pay on every dollar? Do you not get a certain amount tax free?

Sorry, you taxes are very confusing for me.

[Greebo]

Do you not pay income tax to your states as well? Or is that included already?

Yes we do and no it wasn't. That was federal only.

And do you pay on every dollar? Do you not get a certain amount tax free?

Sort of. We first calculate our "adjusted gross income". We take our actual income and deduct various things - mortgage interest, dependent deductions, business losses, and the like. We are then taxed on every dollar of what's left.

Sorry, you taxes are very confusing for me.

Yeah they're confusing to us too.

Edit to add: by setting aside the right % based on gross, however, you can pretty much be sure that even if you pay taxes on the state level, you'll get a refund on the federal that should cover any state taxes easily. Hopefully. Maybe.