Monday, August 16, 2010

My wife is paid as a contractor, how much should she set aside for taxes from each paycheck?

My wife is a new M.D. She is working for a hospital and charges by the hour. She gets paid once per month and gets the gross amount of her paycheck. No deductions. How much should she set aside from each paycheck and what type of taxes does she need to pay (CA). Our tax bracket is in the 6 figures. I am not self employed. Should she pay quarterly so they dont add up? She was told a big mistake new doctors make is they spend the whole paycheck and end up owing much at the end of the year which they dont have.My wife is paid as a contractor, how much should she set aside for taxes from each paycheck?
I recommend she consult a tax professional for comprehensive tax planning advice. People posting here, including me, can give you a short, and frequently learned answer to a limited question but she is starting her whole career now and needs more than the bits and pieces she will get here.


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.My wife is paid as a contractor, how much should she set aside for taxes from each paycheck?
I recommend going to the IRS website at www.irs.gov and downloading Form 1040 Schedule ES. The Schedule ES has a worksheet to help you determine how much to set aside for federal income taxes and provides vouchers for making quarterly payments.
her self employment tax is approx. 15.3% of her Sch C 'net'


this is not considering what this income will impact the overall gross of the family


she can pay quarterly or you can adjust your withholding to allow for it
She should go ahead and pay about 30-40% of her income on her Estimated Quarterly Taxes to be covered during the first year.


That will give you a baseline to work with in the future.
Totally depends on the amount of earnings but paying quarterly will likely save you from what the shock of paying annually may do.
Before any of these questions can be answered, did she volunteer for a Social Security Number?
She'll need to set aside roughly 15% of the first $106k of earnings plus 2.5% of all earnings above that for self-employment taxes. Income taxes will be based upon your combined incomes but at your earning level will probably be at least 25% of her net earnings after business expenses and as much as 35% depending upon her total earnings. As a VERY rough estimate she'll probably need to set aside 35% to 40% of the first $106k in net profits plus 30% to 35% of all net profits above $106k if your income alone is already in the 6-figure territory.





She will need to make quarterly estimated tax payments if your projected tax debt at filing time will be more than $1,000. It only takes a little over $7,000 in net profits from self-employment to hit that mark with the self-employment taxes alone.





She should download the 1040-ES package from the IRS and use the worksheets to estimate her income and your total tax liability and determine how much she needs to pay in. Here's a link: http://www.irs.gov/pub/irs-pdf/f1040es.p鈥?/a>





A better idea at her earning level would be to retain a CPA or EA who specializes in small business tax issues. She has the income to afford professional guidance and advice and it is generally money well spent.

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