Newly married and husband recently self employed now what?

Question

My husband and I recently got married and a few days before the wedding, my husband quit his 8 to 5 job to work construction with my brother. My brother has been doing construction off and on for sometime but never had anyone working with/for him. My brother is paying my husband every two weeks but has not been taking out taxes or anything like that and I know we are going to have to pay in but I don't know how all of that works. We have been told you can pay in quarterly which is the route we want to go but I don't know how to go about figureing out what to pay. Please help

Answer 1

I agree with the first post--look at form SS-8 and see if your husband's arrangement is truly independent contract work or not.  

Your husband may not care if he is classified correctly...but if your brother is audited and the IRS determines your husband was actually an employee, your brother would be in a world of hurt as he would suddenly owe 30% of what he paid your brother in tax and penalties.  (15.3% for the payroll taxes that should have been paid and 100% for penalty.)

At any rate, get some blank 2007 forms.  You need a 1040, a schedule C and a schedule SE.

Start with the C and estimate the income your husband will have.  Very conservatively, estimate his expenses. The tools he bought to do the work will need to be documented (save the receipts!) and depreciated, so he won't necessarily get to deduct much.  He needs to keep a log of mileage when he works on more than one site.  (The drive to/from one site is commuting and not deductible.)

When done with the C, you copy the total to line 12 of the 1040 *and* to the schedule SE.  The SE form calucates the 15.3% payroll tax.  1/2 is a deduction on the front of the 1040 and the other is a tax on line 58 on the back.

Once you're done with the C and SE, go back to the 1040 and complete it.  Add in W-2s, your income, etc.  Figure out the tax total income, the deductions, exemptions, regular income tax, etc.  Add in the SE tax.  This is what you owe.  If the amount is more than $1000, you need to get those quarterly estimated taxes in.  If form 1040ES suggests you need to send in $4000, send $2000 this week (they are late) and $1000 on 9/15 and $1000 next 1/15.

If this seems like too much work, then assume 35-40% of the SE income is TAX and proceed from there.

Answer 2

This could turn into a mess.  Bud is right - your husband and brother need to determine his status.  If he's getting paid hourly, then he's an employee, and your brother needs to be taking out taxes to do things legally.  If he's a subcontractor, then your husband is responsible for his own taxes.  You'd have to figure out what your taxes will be for the year, and make sure to pay in enough in quarterly payments to cover that.  It isn't just income tax - there will be self-employment tax that will be around 14% of what he makes.  The se tax is for social security and medicare, since it isn't being deducted, and your brother isn't paying the employer match.

Answer 3

Your husband and your brother better get his status clearly understood.  Is he an employee of your brother's company or acting as a self-employed "contractor"?

Answer 4

First of all it is unlikely that your brother can treat you husband as an independent contractor but it is rather common for those in the construction industry to try.  But if he does and your husband does not resist you and your husband will be filing a Schedule C for the income from this source.  He may take expenses from the gross income, after which he is responsible for the SS and Medicare tax (Self Employment tax) as well as the income tax.  So you may wish to set aside at least 20% of his income and send that to the IRS quarterly.  Septempber 2008 and January 2009 for this year's taxes.