Health Insurance
Companies Helping Coronavirus-Impacted People
In response to the coronavirus, companies across the country are pursuing coronavirus relief efforts to help people and businesses most impacted by pandemic. Tech companies are donating millions to help small businesses, healthcare workers and COVID-19 patients. Meanwhile, companies outside … Continue reading →
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2 Financial Woes That Can Signal the Start of Dementia
These money management issues can hint at dementia years prior to diagnosis, a new study finds.
13 Things Seniors Can Get for Free â or Almost Free
How to Save on Prescription Medications Without Insurance
The post How to Save on Prescription Medications Without Insurance appeared first on Penny Pinchin' Mom.
INSIDE: Looking for easy tips on how to save money on prescription drugs, even if you don’t have health insurance? Here you go! It seems that every time you get your prescription filled, the price creeps up. Even if you have insurance, you’re probably spending more these days to get your medicine. But that doesn’t … Read More about How to Save on Prescription Medications Without Insurance
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What Is the Self-Employment Tax?
Working for yourself, either as a part-time side hustle or a full-time endeavor, can be very exciting and financially rewarding. But one downside to self-employment is that you're responsible for following special tax rules. Missing tax deadlines or paying the wrong amount can lead to expensive penalties.
Let's talk about what the self-employment or SE tax is and how it compares to payroll taxes for employees. You’ll learn who must pay the SE tax, how to pay it, and tips to stay compliant when you work for yourself.
What is the self-employment (SE) tax?
In addition to federal and applicable state income taxes, everyone must pay Social Security and Medicare taxes. These two social programs provide you with retirement benefits, disability benefits, survivor benefits, and Medicare health insurance benefits.
Many people don’t realize that when you’re a W-2 employee, your employer must pick up the tab for a portion of your taxes. Thanks to the Federal Insurance Contributions Act (FICA), employers are generally required to withhold Social Security and Medicare taxes from your paycheck and match the tax amounts you owe.
In other words, your employer pays half of your Social Security and Medicare taxes, and you pay the remaining half. Employees pay 100% of federal and state income taxes, which also get withheld from your wages and sent to the government.
When you have your own business, you’re typically responsible for paying the full amount of income taxes, including 100% of your Social Security and Medicare taxes.
But when you have your own business, you’re typically responsible for paying the full amount of income taxes, including 100% of your Social Security and Medicare taxes.
Who must pay the self-employment tax?
All business owners with "pass-through" income must pay the SE tax. That typically includes every business entity except C corporations (or LLCs that elect to get taxed as a corporation).
When you have a C corp or get taxed as a corporation, you work as an employee of your business. You're required to withhold all employment taxes (federal, state, Social Security, and Medicare) from your salary or wages. Other business entities allow income to pass directly to the owner(s), so it gets included in their personal tax returns.
You must pay the SE tax no matter if you call yourself a solopreneur, independent contractor, or freelancer—even if you're already receiving Social Security or Medicare benefits.
You must pay the SE tax no matter if you call yourself a solopreneur, independent contractor, or freelancer—even if you're already receiving Social Security or Medicare benefits.
How much is the self-employment tax?
For 2020, the SE tax rate is 15.3% of earnings from your business. That's a combined Social Security tax rate of 12.4 % and a Medicare tax rate of 2.9%.
For Social Security tax, you pay it on up to a maximum wage base of $137,700. You don't have to pay Social Security tax on any additional income above this threshold. However, this threshold has been increasing and is likely to continue creeping up in future years.
However, for Medicare, there is no wage base. All your income is subject to the 2.9% Medicare tax.
So, if you're self-employed with net income less than $137,700, you'd pay SE tax of 15.3% (12.4% Social Security plus 2.9% Medicare tax), plus ordinary income tax.
Remember that your future Social Security benefits get reduced if you don't claim all of your self-employment income.
What is the additional Medicare tax?
If you have a high income, you must pay an extra tax of 0.9%, known as the additional Medicare tax. This surtax went into effect in 2013 with the passage of the Affordable Care Act (ACA). It applies to wages and self-employment income over these amounts by tax filing status for 2020:
- Single: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
- Head of household: $200,000
- Qualifying widow(er): $200,000
What are estimated taxes?
As I mentioned, when you’re an employee, your employer withholds money for various taxes from your paychecks and sends it to the government on your behalf. This pay-as-you-go system was created to make sure you pay all taxes owed by the end of the year.
You must make quarterly estimated tax payments if you expect to owe at least $1,000 in taxes, including the SE tax.
When you’re self-employed, you also have to keep up with taxes throughout the year. You must make quarterly estimated tax payments if you expect to owe at least $1,000 in taxes, including the SE tax.
Each payment should be one-fourth of the total you expect to owe. Estimated payments are generally due on:
- April 15 (for the first quarter)
- June 15 (for the second quarter)
- September 15 (for the third quarter)
- January 15 (for the fourth quarter) of the following year
But when the due date falls on a weekend or holiday, it shifts to the next business day. Your state may also require estimated tax payments and may have different deadlines.
How to calculate estimated taxes
Figuring estimated payments can be extremely confusing when you’re self-employed because many entrepreneurs don’t have the faintest idea how much they’ll make from one week to the next, much less how much tax they can expect to pay. Nonetheless, you must make your best guesstimate.
If you earn more than you estimated, you can pay more on any remaining quarterly tax payments. If you earn less, you can reduce them or apply any overpayments to next year’s estimated payments.
If you (or your spouse, if you file taxes jointly) have a W-2 job in addition to self-employment income, you can increase your tax withholding from earnings at your job instead of making estimated payments. To do this, you or your spouse must file an updated Form W-4 with your employer.
The IRS has a Tax Withholding Estimator to help you calculate the right amount to withhold from your pay for your individual or joint taxes.
How to pay estimated taxes
To figure and pay your estimated taxes, use Form 1040-ES, Estimated Tax for Individuals, or Form 1120-W, Estimated Tax for Corporations. These forms contain blank vouchers you can use to mail in your payments, or you can submit funds electronically.
When you have a complicated situation, including having business income, one of your new best friends should be a tax accountant.
For much more information about running a small business successfully, check out my newest book, Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers. Part four, Understanding Business Taxes, covers everything you need to know to comply and stay out of trouble.
From personal experience, I can tell you that when you have a complicated situation, including having business income, one of your new best friends should be a tax accountant. Find one who listens well and seems to understand the kind of work you're doing.
A good accountant will help you calculate your estimated quarterly taxes, claim tax deductions, and save you money by helping you take advantage of every tax benefit that's allowed when you're self-employed. In Money-Smart Solopreneur, I recommend various software, online services, and apps to help you track expenses, deductions, and tax deadlines that will keep your business running smoothly.
10 Financial Steps to Take Before Having Kids
According to the U.S. Department of Agriculture (USDA), raising a child to the age of 18 sets families back an average of $233,610, and thatâs for each child. This figure doesnât even include the cost of college, which is growing faster than inflation. CollegeBoard data found that for the 2019-2020 school year, the average in-state, […]
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7 Big Insurance Mistakes to Avoid During the COVID Crisis
The coronavirus has upset lives and livelihoods all over the globe. While insurance can’t keep you from getting COVIID-19, having the right types of insurance can reduce your financial risk as the virus spreads.
There’s never been a better time to protect your health, life, property, and business with the right insurance. Let's take a look at seven insurance mistakes you might be making during the pandemic. You’ll learn how to face new risks and challenges with the help of different types of affordable insurance.
Coronavirus insurance mistakes
Here’s the detail on each mistake you should avoid to make sure you and your family stay safe during the pandemic.
1. Skipping health insurance
The coronavirus has changed the health insurance landscape in drastic ways. If you’ve become unemployed or have your work hours cut and lost employer-sponsored health insurance, don’t go without coverage when you may need it most.
Here are several ways to get health insurance:
Medicaid and Children’s Health Insurance Program (CHIP) may be options for free or low-cost coverage if you can’t afford health insurance. These programs allow you to get coverage at any time of year, depending on your income, family size, and where you live. You can learn more at the Medicaid website at Medicaid.gov.
Your parent’s health plan may be an option if they have coverage, you’re under age 26, and they’re willing to insure you. Even if you’re married, not living with a parent, and not financially dependent on them, they can cover you until your 26th birthday.
COBRA coverage is typically available when you leave a job with group health insurance. Whether you quit, are laid-off, or get fired, COBRA is a federal regulation that gives you the option to continue your employer-sponsored health, dental, and vision insurance for a certain period, such as 18 months. However, if you have funds in a health savings account or HSA, you can use them to pay your COBRA premiums.
Affordable Care Act (ACA) coverage is available through federal or state health online marketplaces, insurance brokers, and insurance websites. If your income is below certain limits based on your family size, you qualify for a federal subsidy, which reduces your healthcare premiums. No matter where you live, you can begin shopping at the federal exchange at Healthcare.gov.
2. Not using telehealth services
If you have a high-deductible health plan (HDHP), it typically only covers certain preventive care costs, such as an annual physical or vaccinations, before you meet the yearly deductible.
The CARES Act makes it easier to use telehealth services because your plan must cover it cost-free before your HDHP deductible is satisfied.
However, the CARES Act makes it easier to use telehealth services because your plan must also cover it cost-free before your deductible is satisfied. For other types of health plans, such as HMOs and PPOs, they must also waive any cost-sharing or co-pays for remote health services.
The telehealth relief is only temporary for 2020 and 2021. However, it can give you significant savings if you have a non-emergency or medical question that you want to address with a doctor online.
3. Only getting minimum car insurance coverage
During tough financial times, it can be tempting to cut your auto insurance coverage or drive uninsured. Remember that it’s against the law to drive without having the minimum liability coverage for your home state.
Since many drivers are uninsured, you should never go without uninsured motorist coverage.
However, since many drivers are uninsured, you should never go without uninsured motorist coverage. This insurance protects you from a driver who hits-and-runs or is uninsured or underinsured for the damage they cause you, your passengers, and your car.
According to the Insurance Information Institute (III), 13 percent of drivers are uninsured nationwide. My home state, Florida, has the highest number—almost 27 percent! This data from 2015 is the most recent. Due to coronavirus-related financial hardships, I’d bet those numbers are much higher now.
If you drop any auto insurance coverage, make it collision or comprehensive, which repair or replace your vehicle if it’s damaged or stolen (after paying your deductible). Reducing or eliminating these coverages could make sense if your car isn’t worth much, such as less than $1,000. A good rule of thumb is to drop these coverages if their annual cost is 10% or more of your car’s cash value.
Another way to save on auto insurance is to increase your deductibles or bundle it with other coverage, such as your home or renters policy.
4. Not purchasing a non-owners auto insurance policy
If you’ve sold your car or you tend to borrow or rent cars when needed, don’t forget that you still need the protection of a non-owner auto insurance policy. This coverage gives you liability protection when you drive a car you don’t own or are a passenger in someone else’s car.
Here are some situations when you need non-owner car insurance:
- You rent a car and don’t already have insurance on a vehicle you own.
- You use ride-sharing services, such as Uber and Lyft.
- You borrow cars from family, friends, or neighbors for short or long trips.
5. Overlooking a renters insurance policy
According to the III, a surprisingly low number of renters, 35 percent have renters insurance. Whether you mistakenly believe that your landlord is responsible for your personal belongings (they’re not) or that you don’t have enough to insure (you probably do), you should have a policy.
Landlords only have insurance to protect the structure of a home or apartment you rent, not for a tenant’s personal property. Nor do they protect your liability if someone gets injured accidentally injured in your rental place.
Landlords only have insurance to protect the structure of a home or apartment you rent, not for a tenant’s personal property. Nor do they protect your liability if someone gets injured accidentally injured in your rental place.
Standard renters insurance offers a lot more protection than many people think. It covers your possessions if they’re stolen or damaged from a covered event, such as a water leak, fire, or natural disaster. A renters policy also pays living expenses if you have to move out while repairs get made after an insured disaster, such as a tornado or fire.
Even more important is the liability protection I mentioned. If you get involved in a lawsuit related to property damage or medical injuries, you’ll be covered up to your policy limit.
Renters insurance gives you a lot of protection for the money. It’s probably more affordable than you might think, costing only an average of $188 per year across the nation. Bundling it with your auto insurance could even reduce the cost.
6. Working from home without commercial coverage
Due to stay-at-home mandates during the pandemic, most people who can work from home are doing so. If you’re self-employed as a solopreneur or operate a small business from home, be aware that your home or renters insurance excludes most home-based business activities.
For instance, if you keep inventory at home or have special business equipment, they aren’t covered under a standard homeowner or renter policy. Make sure your business assets and liability are protected by having a separate commercial policy or adding a home-business rider or endorsement to your existing insurance.
The type of business coverage you need varies depending on your industry, whether you drive for business purposes, if you see clients at your home, the value of your business assets, and how much potential risk you have. But it could cost as little as $150 per year. Check with your existing insurance company or a trade association for your industry about getting coverage.
RELATED: How to Qualify for the Coronavirus Economic Relief Package
7. Thinking you can’t get life insurance
It’s not fun to think about death or what would happen to your family if you weren’t alive. If your surviving spouse, partner, children, parents, other dependents, or business partners would be hurt financially after your death, you need life insurance to protect them.
Think about how your survivors would care for your children and meet financial obligations without additional income. Consider how your children would survive if you and your spouse or partner died at the same time. If you’re procrastinating getting life insurance or increasing your current coverage, think about the legacy you want to leave.
The good news is that term life insurance is affordable and still readily available during the pandemic. For example, a $500,000 payout for your family could cost about $200 a year if you’re middle-aged and reasonably good health. Bankrate.com is a good site to learn more and get free life insurance quotes.
5 Things to Consider When Changing Car Insurance
Insurance is defined as a form of protection against loss. But in todayâs insurance industry, insurance can be purchased to mitigate against all forms of loss. It is a type of risk management used by people to protect against uncertain loss or the risk of failure. Insurance companies or carriers or underwriters sell premiums to… Read More
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The Basics of Medicare Eligibility
Medicare is a federal health insurance program widely used by U.S. citizens and permanent residents age 65 and older. The program also applies to those younger than age 65 who have disabilities, end-stage renal disease (ESRD) or other diseases. But … Continue reading →
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