Wife’s new job says taxes won’t be withheld … how does this work?

My wife is starting a new job as a therapist at a local clinic. She just had a meeting to go over the pay details. She’s not salaried, gets no benefits, and her pay comes from insurance or private clients. If it’s insurance, she gets paid once the clinic does. We’re used to that setup since her current job is similar.

What’s new is that they said her paychecks won’t have any taxes withheld—no federal, no state. The manager suggested she set aside 30% from each check for taxes at the end of the year. This threw me off because I’ve never heard of this. My quick search didn’t help much except showing people discussing penalties for underpayment.

Can anyone explain how this works? What’s the best way to handle the taxes so we’re not hit with a huge bill all at once? Is there a way to pay in smaller amounts throughout the year?

Edit: Thanks for all the info about 1099 contractors and quarterly tax payments. I’ll go over this with my wife and figure out the next steps.

It sounds like your wife is being hired as a 1099 contractor, which is why taxes won’t be withheld.

Van said:
It sounds like your wife is being hired as a 1099 contractor, which is why taxes won’t be withheld.

Yep, she’s not an employee. 1099 contractor arrangements aren’t uncommon, but hopefully her pay reflects that since she’s covering her own taxes.

Van said:
It sounds like your wife is being hired as a 1099 contractor, which is why taxes won’t be withheld.

Exactly. And she’ll also owe self-employment tax on top of income tax.

Stevie said:

Van said:
It sounds like your wife is being hired as a 1099 contractor, which is why taxes won’t be withheld.

Exactly. And she’ll also owe self-employment tax on top of income tax.

She’ll need to make quarterly tax payments, not wait until the end of the year.

@Nico
Check irs.gov for more details on how to make those payments.

@Nico
Isn’t quarterly payment only required if you owe over $1,000 in taxes?

Axel said:
@Nico
Isn’t quarterly payment only required if you owe over $1,000 in taxes?

Yes, but most people in her situation will owe more than $1,000. If she’s just starting this job late in the year, she might not need to make estimated payments until next year.

@Nico
The year’s almost over, so if she starts now, she’s missed three payments.

Stevie said:
@Nico
The year’s almost over, so if she starts now, she’s missed three payments.

The post says she’s starting soon. It’s unclear if she’ll even get paid before 2024.

Stevie said:

Van said:
It sounds like your wife is being hired as a 1099 contractor, which is why taxes won’t be withheld.

Exactly. And she’ll also owe self-employment tax on top of income tax.

Not making quarterly payments could mean penalties too.

Van said:
It sounds like your wife is being hired as a 1099 contractor, which is why taxes won’t be withheld.

Yeah, definitely sounds like a contractor setup.

She should definitely make quarterly estimated tax payments to avoid penalties.

Grier said:
She should definitely make quarterly estimated tax payments to avoid penalties.

How does she go about doing that? Sorry, we’re new to this.

Val said:

Grier said:
She should definitely make quarterly estimated tax payments to avoid penalties.

How does she go about doing that? Sorry, we’re new to this.

Check this link: Estimated taxes | Internal Revenue Service

@Juno
Thank you!

Val said:
@Juno
Thank you!

Also look into your state’s rules if you have state income tax.

Val said:

Grier said:
She should definitely make quarterly estimated tax payments to avoid penalties.

How does she go about doing that? Sorry, we’re new to this.

If you’re new to this, the IRS website is a good place to start: Estimated taxes | Internal Revenue Service. Also, since she’s a contractor, she’ll probably file a Schedule C for her business expenses. Things like licensing fees, insurance, and travel could be deductions.

Consider setting up a separate bank account just for her work income and expenses to make things easier to track.

@Torin
Don’t forget state taxes if applicable. Many states require estimated payments too.

Val said:

Grier said:
She should definitely make quarterly estimated tax payments to avoid penalties.

How does she go about doing that? Sorry, we’re new to this.

You can use eftps.gov to set up payments directly from your checking account. It’s flexible and easy to adjust.