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 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.) and your previous W2 and 1099 income. There are 3 things that can make your tax rate (and therefore your withholding suggestions) 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 do not include the deduction from business expenses, so it is very possible that the sum of your withholding suggestions will be larger from your total tax liability. The good news is that
- As long as your tax profile remains constant, your overall tax liability will always be less than the sum of your withholding suggestions.
- If you withhold more than you owe in taxes, we'll return your money to you in the form of a tax refund!
- 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?
We currently don't support the ability to change the withholding suggestion or tax rate - it's a good idea to go with our suggestions, as they are based upon your income bracket, filing status and outstanding tax payments. Also, if we ever withhold too much, we'll send your money back to you in the form of a tax refund!