Self-employment offers many benefits. It also involves more complex tax compliance requirements, which causes some taxpayers to fail to pay their self-employment taxes.
What Are Self-Employment Taxes?
Self-employed taxpayers must generally pay 15.3% of their income in self-employment taxes. Employees only pay half of this amount because their employers pay the other half.
Along with a higher tax rate, self-employed taxpayers also have to be responsible for paying this many themselves. Employees have these amounts automatically withheld from their wages, but entrepreneurs need to pay these amounts using quarterly estimated tax payments.
Three months is a long time to go between payments. It may be tempting to use this money for other purposes, leaving no money left when it’s time to submit your estimated tax payment.
Some independent contractors may also be unaware that they need to pay self-employment taxes or submit estimated taxes payments. They can end up owing thousands of dollars when they file their taxes, along with underpayment penalties and interest.
Resolving Self-Employment Tax Problems
There are several strategies you can use to pay off your delinquent self-employment taxes:
- Make monthly payments on an installment agreement
- Request penalty relief
- Submit an Offer in Compromise if you can’t afford monthly payments
- Dispute the tax liability if you don’t agree with the IRS tax assessment
Make sure you understand your estimated tax obligations and start making payments. The IRS doesn’t appreciate when taxpayers are trying to settle their old self-employment tax debts while falling behind on new ones.
You can also choose to make payments more frequently if the quarterly estimated tax system isn’t working for you. Monthly payments may be easier to remember for some taxpayers. Just make sure you are paying at least as much as you need to each quarter.
Finally, make sure you are taking advantage of all of your business expense deductions. This is an area where self-employed taxpayers have an advantage because they can deduct expenses that employees can’t.
Contact a tax attorney if you have self-employment tax debt and need to get back into compliance with your tax obligations.
The Gartzman Law Firm handles tax debt settlement, tax audit defense, and other tax resolution cases. Use our contact form to request a consultation with an Atlanta tax resolution attorney.