Employers deduct income tax from their employees’ paychecks and remit and report it to the IRS. They give all their employees an IRS Form W-2, Wage and Tax Statement, showing wages and withholding for the year. Employees must file a copy of the W-2 with their income tax returns so that the IRS can compare the amount of income they report with the amounts their employers claim they were paid.
When you’re self-employed, no income tax is withheld from your compensation, and you don’t get a W-2 form. However, this doesn't mean that the IRS won't have at least some idea of how much money you’ve made.
If the total of all the payments you receive from a client over a year is $600 or more, the client must complete and file IRS Form 1099-NEC, Nonemployee Compensation, reporting the payments. (Note that IRS Form 1099-MISC, Miscellaneous Information was used in 2020 and earlier to report payments to independent contractors in prior years. However, Form 1099-MISC now reports other miscellaneous income, like rent and prizes.)
The client must complete and file a copy of Form 1099 with:
To make sure you’re not underreporting your income, IRS computers check the amounts listed on your 1099 Forms against the amount of income you report on your tax return. If the amounts don’t match, you have a good chance of being flagged for an audit.
You don't have to file the 1099 forms with your tax return. Just keep them in your records.
You should receive all your 1099 forms for the previous year by January 31st of the current year. Make sure the hiring firms you worked for have your current address, or the forms might not arrive on time (or at all).
Check the amount of compensation your clients say they paid you in each Form 1099 against your own records to make sure they're consistent. If there's a mistake, call the client immediately and request a corrected Form 1099.
If the 1099 has been filed with the IRS, ask the client to send the IRS a corrected 1099. You don't want the IRS to think you were paid more than you really owe. The 1099-NEC form has a special box that should be checked to show that it is correcting a prior 1099 form.
It's not unusual for clients to fail to file 1099 forms. This might be unintentional—for example, the client might not understand the rules or might just be negligent in filing them. On the other hand, some clients purposefully fail to file 1099 forms because they don’t want the IRS to know they’re hiring independent contractors.
If you don't receive a 1099 you’re expecting from someone that has your correct address, should you contact them and ask for it? This approach isn't necessary. It's not your duty to see that 1099 forms are filed. This is your client’s responsibility. The IRS won't impose any fines or penalties on you if a client fails to file a 1099. It might, however, impose a fine on the client—and exact far more severe penalties if an IRS audit reveals that the client should have classified you as an employee.
Whether or not you receive a Form 1099, it's your duty to report all the self-employment income you earn each year to the IRS. If you’re audited by the IRS, it may examine your bank records to make sure you haven’t underreported your income. If you underreported, you'll have to pay back taxes, fines, and penalties.
So, keep records of all the nonemployee income that you earn throughout the year. If you take this precautionary step, you'll be well prepared to file your taxes even if someone doesn't send you a 1099-NEC you're expecting.
]]>If a child fails to file, you (the parent) might be liable for the tax. Moreover, if your child can't file a return for any reason, such as age, you're legally responsible for filing one on your child's behalf.
For all these reasons it's vitally important to know how much your dependent child can earn before a tax return has to be filed. But how much can a dependent child earn? Read on to find out.
Whether your child is required to file a tax return depends on the applicable standard deduction and how much earned and unearned income the child had during the year.
"Earned income" is income a child earns from working. It includes salary or wages, tips, professional fees, and taxable scholarship and fellowship grants.
"Unearned income" is investment-type income. It includes taxable interest, dividends, capital gains, unemployment compensation, Social Security benefits, annuities, and distributions of unearned income from a trust.
A child who has only earned income must file a return only if the total is more than the standard deduction for the year. Your child will have to pay tax on the salary only to the extent it exceeds the standard deduction amount for the year: $13,850 in 2023 ($14,600 for 2024).
Example: William, a 16-year-old dependent child, worked part-time on weekends during the school year and full-time during the summer. He earned $16,000 in wages during 2023. He didn't have any unearned income. He must file a tax return because he has earned income only, and his total income is more than the standard deduction amount for 2023.
A child who has only unearned income must file a return if the total is more than $1,250 for 2023 ($1,300 for 2024).
Example: Sadie, an 18-year-old dependent child, received $1,900 of taxable interest and dividend income during 2023. She didn't work during the year. She must file a tax return because she has unearned income only, and her total income is more than the unearned income threshold for 2023.
However, if your child's interest and dividend income (including capital gain distributions) total less than $12,500 for 2023 ($13,000 for 2024), you can elect to include that income on your (the parents') return rather than file a return for the child. In this event, all income over $2,500 for 2023 ($2,600 in 2024) is taxed at your tax rates—you could end up paying more with this method.
If a child has both earned and unearned income, that child must file a return for 2023 if:
Example: Mike, a 19-year-old college student claimed as a dependent by his parents, received $200 taxable interest income (unearned income) and earned $2,800 from a part-time job during 2023 (earned income). He doesn't have to file a tax return. Both his earned and unearned income are below the thresholds, and his total income of $3,000 is less than his total earned income plus $400 ($3,200).
Even if your child doesn't meet any of the filing requirements discussed, that child should file a tax return if:
(1) income tax was withheld from that child's income, or
(2) that child qualifies for the earned income credit, additional child tax credit, health coverage tax credit, refundable credit for prior year minimum tax, first-time home buyer credit, adoption credit, or refundable American opportunity education credit.
See the tax return instructions to find out who qualifies for these credits. By filing a return, your child can get a refund.
The first $1,250 (2023) of unearned income is covered by the kiddie tax standard deduction, so it isn't taxed. The next $1,250 (2023) in unearned income is taxed at the child's tax rate, which is ordinarily lower than the parent's. Income over $2,500 (2023) is taxed at the parent's maximum income tax rate.
Figuring the kiddie tax can be complex. For example, if a parent has more than one child subject to the kiddie tax, the net unearned income of all the children has to be combined, and a single kiddie tax calculated.
For federal income tax purposes, the income a child receives for personal services (labor) is the child's, even if, under state law, the parent is entitled to and receives that income. So, dependent children pay income tax on their earned income at their own individual tax rates.
]]>However, you probably should itemize if the standard deduction is less than your itemized deductions. Every year it's up to you to decide whether to take the standard deduction or itemize your deductions.
The standard deduction is a specified dollar amount you can deduct each year. It accounts for otherwise deductible personal expenses such as medical expenses, home mortgage interest and property taxes, and charitable contributions. You take the standard deduction instead of deducting your actual personal expenses.
The amount you're allowed to deduct depends on your filing status and is adjusted for inflation each year. The TCJA roughly doubled the standard deduction starting in 2018. So, today, only about 11% of all taxpayers itemize, compared with 30% before 2018. This situation will likely stay the same until the relevant provisions of the TCJA expire on December 31, 2025, or Congress acts sooner.
For the tax year (TY) 2023 (returns due in April 2024), the standard deduction amounts are as follows:
Filing Status |
Standard Deduction |
Single |
$13,850 |
Married Filing Jointly |
$27,700 |
Married Filing Separately |
$13,850 |
Head of Household |
$20,800 |
Surviving Spouses |
$27,700 |
For TY 2024 (returns due in April 2025), the standard deduction amounts are:
Filing Status |
Standard Deduction |
Single |
$14,600 |
Married Filing Jointly |
$29,200 |
Married Filing Separately |
$14,600 |
Head of Household |
$21,900 |
Surviving Spouses |
$29,200 |
Those who are 65 or older and who the IRS considers blind get an additional standard deduction amount. The IRS website has information on the current year's standard deduction amounts.
Yes, the standard deduction reduces the income amount on which you're taxed. For example, a married couple filing a tax return jointly in 2023 with an adjusted gross income (AGI) of $120,000 gets a standard deduction of $27,700, which reduces their taxable income to $92,300 ($120,000 - $27,700 = $92,300).
The standard deduction is generally available to anyone who doesn’t itemize. But you can’t claim the standard deduction in the following situations:
Instead of taking the standard deduction, you have the option of itemizing your deductions. Instead of taking the standard deduction, you individually deduct the actual amounts of certain expenses item by item.
You must list all the deductions on IRS Schedule A and include this schedule with your tax return. Itemizing is a lot more work than taking the standard deduction. You have to know what expenses are deductible and keep track of them.
You also need to keep records of your expenses. Canceled checks or credit card statements aren't enough—you must keep receipts and other bills showing what you spent the money on.
Itemized deductions are usually personal in nature and don’t include business expenses. Some of the more common ones are:
The largest of these deductions are those for home mortgage interest, property taxes, and state income tax. For this reason, homeowners are more likely to itemize, while renters rarely do so.
But most of these expenses can't be deducted in full. Instead, they're subject to special limitations. The TCJA stiffened the limitations for many of these deductions.
For example, home mortgage interest on homes purchased in 2018 through 2025 may only be deducted on acquisition loans totaling $750,000 (it was $1 million under prior law). And only a maximum $10,000 deduction is allowed for state and local taxes and property taxes. Casualty losses are deductible only for losses due to federally declared disasters. Medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income.
Moreover, the TCJA eliminated itemized deductions for several types of expenses during 2018 through 2025, such as:
So, you might find that few or none of your personal expenses are deductible.
Yes, itemizing can decrease your taxable income (again, that's the amount of your income that’s subject to taxation).
You must choose whether to itemize or take the standard deduction each year. The IRS won’t tell you what’s in your best interest—it doesn’t care if you make the wrong choice and overpay your taxes. You (or your tax preparer) must decide.
The more you can deduct, the less you’ll pay in taxes. So, if the total of your itemized deductions is more than the standard deduction, it makes sense to itemize. Most tax filing software programs can help you add up your itemized deductions so you can compare them to the standard deduction. A tax pro can also help you with this process.
Obviously, you should itemize only if it will give you a larger total deduction than the standard deduction for that year. You will likely be able to itemize only if you:
Through careful planning, you can often increase your deductible expenses for a given year so that it pays to itemize that year. For example, you can bunch your charitable contributions in one year instead of spreading them over two or more years. This tactic will give you a bigger deduction for the bunched year and might enable you to itemize.
The same strategy can be used for discretionary medical expenses.
Some states allow taxpayers to have a different deduction type on their state return than the federal one. For example, if you claimed the standard deduction on your federal return, you might be able to itemize your deductions on the state return. Talk to a tax professional in your state to learn the guidelines and limitations that apply in your situation.
Yes. Even if you don't itemize, you might be able to take “above-the-line” deductions. These deductions reduce the amount of income you have to pay tax on. For example, you can deduct health savings account (HSA) contributions and student loan interest.
Find out about IRS audit rates and the odds of being audited in What Are the Triggers of IRS Tax Audits?
Read about the Earned Income Tax Credit, a refundable tax credit, which means you might be able to get free money from the federal government.
Get information about common tax deductions for individuals.
If you have questions about whether you should itemize or take the standard deduction, contact a local tax lawyer or another tax adviser, such as a certified public accountant.
]]>If you're an employee, your employer withholds your income and Social Security and Medicare taxes from your paychecks and sends the money to the IRS. You'll get a tax refund if your employer withholds too much from your paycheck.
The average taxpayer gets a tax refund of about $2,800 every year. Again, this is because too much tax is withheld from their paychecks.
In effect, taxpayers who get refunds are giving the IRS an interest-free loan of their money. Nevertheless, many taxpayers like getting refunds. Indeed, there were widespread complaints when many taxpayers received smaller refunds for 2018 than in past years because the IRS recalculated their withholding to take into account the changes the Tax Cuts and Jobs Act brought about.
If you like getting a refund, go ahead and overpay your withholding. Some people view this as a form of forced savings.
However, you'll be better off if you don't have too much tax withheld. Ideally, your withholding should match the actual amount of tax you owe for the year. This way you'll have more money in your pocket each month.
The amount of income tax your employer withholds from your regular pay depends on two things:
When you start a new job, you must fill out IRS Form W–4, Employee's Withholding Allowance Certificate and give it to your employer. Form W-4 includes three types of information that your employer will use to figure your withholding:
The number of allowances you claim will increase or decrease how much is withheld. You can claim withholding allowances for yourself, your spouse, and for each dependent.
Allowances are also available if you itemize your deductions, or qualify for tax credits such as the child tax credit, education credits, adoption credit, credit for the elderly and disabled, foreign tax credit, retirement savings credit, prior year AMT credit, child and dependent care credit, credit for home mortgage interest, general business credit, and earned income credit.
Your W-4 isn't set in stone. You can always give your employer a new W-4 to change your withholding status or number of allowances. Examples of changes that might require changes in your W-4 include:
You should check your W-4 in early November to give you time to make adjustments by the end of the year. You should also check it again after you file your taxes for the prior year. If too much was withheld for that year, have less withheld for the current year. You'll probably qualify to increase your withholding allowances.
Note, however, that you can claim only the number of allowances to which you are entitled. You can't claim lots of allowances you don't qualify for simply because you don't want to have taxes withheld.
If the IRS determines that you do not have adequate withholding, it may direct your employer to withhold more federal income tax by issuing a "lock-in letter." At that point, your employer must disregard any Form W-4 that decreases the amount of your withholding.
You will receive a copy of the lock-in letter and have an opportunity to submit to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease your federal income tax withholding. Once a lock-in letter is issued, you won't be allowed to decrease your withholding unless approved by the IRS.
Form W-4 contains worksheets you can use to figure how much you should have withheld. However, it's a lot easier to use the IRS's online withholding calculator.
Tax preparation software can also calculate your withholding.
]]>Simply put, your domicile is your home—the state you consider your permanent place of residence. If you aren’t living there right now, then it’s the place to which you intend to return and make your home indefinitely. You can have more than one residence, but only one domicile.
When or why does the question of domicile arise? Your domicile can have an effect on many legal issues, especially taxation.
Most commonly, it comes up after a state’s taxing agency (department of revenue or taxation) rules that someone is domiciled in the state. A taxpayer (or the taxpayer’s surviving family members) who wants to dispute that determination must go to court.
Most states impose an income tax on people who live or work in the state. If you’re domiciled there, you pay tax on all of your income; if you’re not, you pay tax only on income derived from sources in the state. (Even if your domicile is elsewhere, however, you may be assessed tax like a domiciliary if you are a “resident” under state law.)
Domicile and State Estate Tax
Fewer than 20 states impose their own estate tax—that is, a state tax on assets left at death. If you’re domiciled in one of these states (such as New York or Massachusetts), your survivors might end up paying a tax bill that wouldn’t be due if your legal domicile were in a non-taxing state (such as Florida or Arizona).
If surviving family members need to start a probate court proceeding to distribute your assets to the people who inherit them, they must begin it in the state (and county) where you were domiciled at your death.
All states have residency requirements that you must meet in order to get divorced in that state's courts. Even when the laws don't use the term "domicile," courts in many states have held that "residency" means essentially the same as domicile in this context. In other words, most states require that you've been living in the state for the required amount of time before you file for divorce and that you plan on staying there indefinitely.
Some factors that indicate where you’re domiciled include where you live, vote, register your car, and where your spouse or partner and children live. But domicile is fundamentally a question of your intent—which state do you consider your permanent home?
Example: Harry and Simone have lived in New Jersey most of their lives. They’ve owned their New Jersey house for 30 years, their tax returns list their New Jersey address, and their wills declare that they’re residents of New Jersey. But they now spend six months of the year in Florida, own a house in a resort community there, vote there, and have a car registered there. Where is their legal domicile? If there’s a legal battle, the outcome will depend on evidence of which one they consider their permanent home. Unless they’ve transferred most of their important activities (see below) to Florida, there’s probably not enough evidence to show that they intended to change their domicile from New Jersey to Florida.
If it isn’t clear which state is your legal domicile, decide which one you want it to be, and then take steps to make sure that state will legally be considered your domicile.
Owning a home in a state, or spending most of your time there, isn’t enough to make it your domicile. Because the crucial factor is your intent, take every opportunity to show or declare that the preferred state is your permanent residence.
For example, it’s important to use your in-state address for your:
In your estate planning documents, including your will, living trust, powers of attorney, and healthcare directive, you can also make an explicit statement that the preferred state is your domicile. Most wills, for example, begin with a statement of domicile. Make sure the documents comply with the preferred state’s laws.
Here are some more steps you can take to show that your life is centered in the preferred state:
It’s not enough to take these kinds of steps to establish a new domicile; you must also show that you intended to give up the old one. So these actions are also important:
A "joint" return is a single return for spouses that combines their incomes, exemptions, credits, and deductions. The vast majority of married couples file jointly—over 95%.
You can choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. You can file a joint return even if one of you had no income or deductions.
Only a married couple can file a joint return. You are considered married for tax purposes for the entire year if, by December 31:
If your spouse dies and you don"t remarry in the same year, you may file a joint return for that year. This is the last year for which you may file a joint return with that spouse.
If you’re married, you always have the option to file your taxes separately. If one of you won’t agree to file a joint return, you’ll have to file separately, unless you qualify for head of household status.
When you file a separate return, you report only your own income, exemptions, credits, and deductions on your individual return.
If you live in a community property state, the income you and your spouse earn is split evenly between you, as are your expenses (unless they are paid by one spouse with their separate non-community funds—for example, money you earned or inherited before marriage). There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
There are several disadvantages to filing separately that you need to be aware of, however, because these can easily outweigh any potential benefits:
As a result of the Tax Cuts and Jobs Act, the tax rates in effect during 2018 through 2025 for married taxpayers filing separate returns are exactly half those for marrieds who file joint returns. Nevertheless, most married people save on taxes by filing jointly, particularly where one spouse earns most or all of the income. This is because filing jointly shifts the high earner's income into a lower tax bracket. If spouses earn about the same income, there should be little or no difference in their tax rates whether they file jointly or separately.
The only way to know for sure if you’ll pay more or less taxes by filing separately or jointly is to figure your taxes both ways. This isn’t hard to do if you use tax preparation software.
There is one potential huge drawback to filing jointly: As a general rule, when a married couple files a joint return each spouse is jointly and individually liable for the entire tax owed on the return. This means that either spouse can be required to pay the tax due, plus any interest, penalties, and fines.
A spouse can claim “innocent spouse relief” and avoid personally paying the other spouse’s taxes if they can show the IRS that: (1) the understatement of tax was due to the other spouse, and (2) the spouse did not know, or have reason to know, that there was an understatement of tax when they signed the joint return. However, both propositions can be hard to prove.
You’ll avoid being personally responsible for your spouse’s taxes if you file a separate return. This is something you should seriously consider if you know your spouse cheats on their taxes.
If you need tax help, talk to a tax professional, such as a certified public accountant or a tax attorney. A tax professional can prepare tax returns, give tax information and guidance, as well as provide representation before the IRS.
Is there anything you can do if you think you should be treated as an employee, but have been classified as an independent contractor by your employer? Yes, there are lots of things you can do, and they can often be very effective.
Among other things, being misclassified as an independent contractor means that you'll:
Here's what to do if you're misclassified as an independent contractor.
First, you can try to talk to your employer to see if it will review your classification and reclassify you as an employee. Explain that you think you've been wrongly classified as an independent contractor. At the very least, you should get an explanation as to why they think you are a contractor, instead of an employee.
If trying to talk to your employer doesn't work, you can contact the IRS. Workers who believe they have been misclassified as independent contractors may request that the IRS determine their employment status for federal tax purposes by filing IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. There is no fee for filing.
You answer a series of questions on this form about the nature of your work and how your employer treats you on the job. After the IRS receives the form, it will contact your employer to get their version of the facts. It will then determine what your status should be for purposes of federal employment taxes and income tax withholding. The decision made by the IRS will be binding on the IRS. It is not binding on your employer, but any employer who ignores the IRS's determination will be in for trouble.
One thing to keep in mind is that the IRS may disclose your identity to your employer, which might not make the employer too pleased with you.
Independent contractors have to pay all their Social Security and Medicare taxes themselves. In contrast, employees have half of these taxes paid by their employers. If you think you've been misclassified as a contractor, you can avoid having to pay more than half of these taxes yourself by filing IRS Form 8919, Uncollected Social Security and Medicare Tax on Wages.
You use Form 8919 to figure and report your share of the uncollected Social Security and Medicare taxes due on your compensation if you were treated as an employee instead of an independent contractor. By filing this form, your Social Security and Medicare taxes will be credited to your Social Security record.
However, you must be able to claim one of the reasons below before you can file Form 8919:
If you've been fired or laid off by your employer, file an employment insurance claim with your state unemployment agency. Explain that you've been misclassified as a contractor instead of an employee, and the agency will investigate.
If it determines you should have been treated as an employee, you'll be entitled to unemployment insurance and your employer will be fined and have to pay back insurance premiums. A list of Unemployment Office Locations is available at the credit.org website.
If you've been injured on the job and your employer refuses or fails to provide you with workers' compensation coverage, you should file a claim with your state workers' compensation insurance agency. A list of state workers' compensation agencies is available at the United States Department of Labor website.
For everything you need to know about being an independent contractor, get Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Gig Workers of All Types, by Stephen Fishman (Nolo).
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