How much do I owe in taxes on this income?
Is a question we hear all the time - which is why we created withholding suggestions! Every transaction that is categorized as 1099 income will have a withholding suggestion, telling you the right amount to withhold from that paycheck to completely cover the taxes owed. You'll never be left wondering what you owe and what you can keep.
Why is my withholding rate 0%?
It means you're all caught up on your taxes! Track automatically adjusts your tax rate to cover your tax liability. If you're all caught up on your taxes or have overwithheld, you don't need to withhold from new income, so your withholding rate will be 0%!
Why are the suggested withholding amounts different?
Track calculates the exact amount you should withhold from each income. These calculations are based upon your tax profile (filing status, state, etc.), your previous W2 and 1099 income, business deductions, previous IRS payments and withholding balance.
Your suggested withholding rate will automatically adjust to properly reflect how much you need to withhold based upon your actual tax liability.
There are 3 things that can make your suggested withholding to differ between identical income amounts.
- Tax Brackets - The US tax code works on a "tax bracket" system, meaning that the more income you earn, the higher your taxes. Track will calculate income received later at the accurate (potentially higher) tax rate.
- Standard Deduction - Federal and State income taxes come with a "standard deduction". You are only charged Federal and State income taxes on income above your standard deduction. This means that your first 1099 income received will have 0% (or minimal) Federal and State income taxes.
- Social Security Tax Limit - Your Self-employment taxes include a 12.4% social security tax. However, you are only required to pay this tax on up to $128,400 - any income beyond this amount is not subject to the social security tax. If you've added W2 income in the system, your previously paid social security tax will be counted towards the limit.
Why do the suggestions differ from my overall tax liability?
Your withholding suggestions automatically adjust to cover your tax liability, but there may be times when this value differs from your true tax liability. This is a temporary issue and over time will resolve itself if you continue to withhold at the suggested rate.
The good news is that
- If you don't feel comfortable with Track automatically adjusting your tax rate, you can specify a Manual Tax Rate!
- If you withhold more than you owe in taxes, we'll either return your excess withholdings in the form of a tax refund, or apply the additional balance to your future withholding suggestions.
- If you don't withhold enough (because of a change in your tax profile or W2 income), we will notify that you owe additional taxes and may suggest additional withholdings.
Can I change the amount of the withholding suggestion, or adjust my tax rate?
These features are coming soon!