Do self employment taxes count towards safe harbor rules?

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Miguelito
Posts: 494
Joined: Thu Feb 27, 2014 12:21 pm

Do self employment taxes count towards safe harbor rules?

Post by Miguelito »

This year's "apples-to-apples" income taxes may or may not be greater than last year's, but if we include the additional taxes due resulting from one of us now being an owner, we definitely exceed last year's tax bill and thereby would be within the safe harbor. I'm inclined to think it does. After all, Form 1040 line 23 reads: "Other taxes, including self-employment tax." Which is a figure that feeds into the final, "This is your tax" figure.

If so, we would exceed last year's total tax and one of us would not have to adjust the paycheck's withholding to compensate for what turns out will be insufficient, equal quarterly estimated taxes.

Could anyone here confirm this? Thanks!
earlyout
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Joined: Tue Feb 20, 2007 4:24 pm

Re: Do self employment taxes count towards safe harbor rules?

Post by earlyout »

Sorry, they do not. Self-employment taxes are for FICA, not income tax. The safe-harbor rules apply only to income tax. Any estimated income tax payments made by your spouse would apply to the safe harbor.
Last edited by earlyout on Sun Jun 09, 2024 12:21 pm, edited 1 time in total.
toddthebod
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Joined: Wed May 18, 2022 12:42 pm

Re: Do self employment taxes count towards safe harbor rules?

Post by toddthebod »

Miguelito wrote: Sun Jun 09, 2024 12:13 pm This year's "apples-to-apples" income taxes may or may not be greater than last year's, but if we include the additional taxes due resulting from one of us now being an owner, we definitely exceed last year's tax bill and thereby would be within the safe harbor. I'm inclined to think it does. After all, Form 1040 line 23 reads: "Other taxes, including self-employment tax." Which is a figure that feeds into the final, "This is your tax" figure.

If so, we would exceed last year's total tax and one of us would not have to adjust the paycheck's withholding to compensate for what turns out will be insufficient, equal quarterly estimated taxes.

Could anyone here confirm this? Thanks!
Yes, see form 2210, including the instructions, for the details, but this one is easy. Line 2 is:
Other taxes, including self-employment tax and, if applicable, Additional Medicare Tax and/or Net
Investment Income Tax (see instructions)
Topic Author
Miguelito
Posts: 494
Joined: Thu Feb 27, 2014 12:21 pm

Re: Do self employment taxes count towards safe harbor rules?

Post by Miguelito »

Thank you.
avalpert1
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Joined: Sat Mar 02, 2024 6:15 pm

Re: Do self employment taxes count towards safe harbor rules?

Post by avalpert1 »

earlyout wrote: Sun Jun 09, 2024 12:18 pm Sorry, they do not. Self-employment taxes are for FICA, not income tax. The safe-harbor rules apply only to income tax. Any estimated income tax payments made by your spouse would apply to the safe harbor.
This is incorrect. Self-employment taxes are an income tax reported on your personal income tax form not part of FICA at all (thus they are part of 26 USC subtitle A and not subtitle c), and included in the calculations for underpayment penalties and the associated safe harbors.
lstone19
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Location: Nevada

Re: Do self employment taxes count towards safe harbor rules?

Post by lstone19 »

The way you asked your question is confusing to me. "If we include the additional taxes due resulting from one of us now being an owner, we definitely exceed last year's tax bill and thereby would be within the safe harbor" makes no sense. Having a larger tax bill this year can increase your safe harbor amount but cannot lower it. So I think you're really asking if estimated payments you make that you are thinking of as being for self-employment taxes count towards the safe harbor amount. They do as withholding and estimated tax payments are merely payments to your tax account. They are never for any particular income nor to cover any particular part of your total tax. You are not making payments for income tax or for self-employment tax, you are simply making payments.

Your safe harbor amount is calculated on 2210 (whether you need to file it or not). It is the lower of 100% (110% for high income taxpayers) of last year's tax (an amount already known) and 90% of this year's (an amount you can estimate but is not yet known with certainty). Specifically how to calculate it is in the 2210 instructions.
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