in this video I’m going to talk about

the IRS Form w-4 for 2020 plus your side hustle so how do you calculate that

self-employment tax and pay for it on your w-4 that’s what I’m going to show

you so the first thing I’m going to go over is how do you do this math because

it’s really important that you know how to do it so you can make a better

decision on your entire financial life and then I’m gonna show you a really

fast way of calculating all this math super quick so you can do it and pay for

it pay those taxes on your w-4 but more importantly than one in two is number

three how do you save a bunch of money doing this this is the whole reason I do

these w-4 videos and show you anything tax related it’s so you can save more

money do better for yourself financially so you’re gonna see exactly why

sometimes I’ll choose the 401 K versus the Roth IRA as my savings vehicles so

that is how you can make this decision by using the w-4 in your taxable

situation but before we do all of this this is your first time entertaining or

you haven’t subscribed click on the subscribe button at the bottom my name

is Travis Sickle certified financial planner helping you reach your financial

goals so I am going to put the time codes in

the description at the bottom so you just click and jump around to the video

wherever you want it’s perfectly fine to jump ahead or come back to a section

that you might have missed Oh on a review now I’m gonna go over the math

first and it’s probably gonna be a little bit on the boring side but trust

me if you understand this math you’re gonna be in a much better situation to

control your own finances so watch this video go through it so you can see

exactly how I’m saving a bunch of money then I’m gonna show you the online

version to the w-4 and I’m going to show you how to add that side hustle income

so you can make sure that you’re not only accounting for it but that you’re

paying for it you could just be done with it it’s gonna be super fast walk

through on that and then I’m gonna show you how you can make this decision

choosing between the 401k and the Roth IRA so here we go I’m going to pull it

up on the screen so there are two types of taxes that we need to account for

when we’re self-employed so that’s going to be your Medicare and your Social

Security so Social Security so your Medicare tax is going to be one point

four five percent for the employee and then it’s also going to be one point

four five percent for the employee which is two point nine percent and on

the Social Security side we’re going to have six point two percent for the

employee and six point two percent from the employer so that’s going to be

twelve point four percent so these are the two taxes that are going to come out

of your paychecks but you as a self-employed individual but it’s

self-employed or having your side hustle you’re responsible for paying both sides

the employer and the employee so this is not federal taxes this is FICA taxes so

this again Medicare and Social Security so that’s going to be fifteen point

three percent now there are more rules that you need to know you need to know

that Social Security only goes up to a hundred and thirty seven thousand seven

hundred dollars in total income so above and beyond that at zero and Medicare is

all of your dollars and then over two hundred thousand it is an additional

point nine Sam so this is the math or the basis for

what we’re gonna do in this video so you can see how that side hustle money works

so I’m gonna give you an example so let’s say that we’re earning $50,000 a

year and we’re gonna call this our W 2 or W 4 income so our w2 income because

that’s how you’re gonna get paid but we’re filling out the w-4 to tell our

employer how much we need to have held in addition to that I’m gonna give you

an example of a $6,000 side hustle so we’re gonna call this our 1099 or

independent contract or self-employment money that we’re earning so in total

we’re earning fifty six thousand dollars but our taxes are going to be a little

different because this amount right here is self-employment tax which we have to

account for that 15.3% now you would think that it might be as easy as just

adding or multiplying 15.3% times 6,000 but that would not be correct that’s not

how you calculate it so I’m gonna show you the long math first so you can

really see exactly not only how your self-employment tax is calculated but

how your federal taxes are calculated as well and then I’m gonna show you how we

can adjust the w-4 to take all this money out of our paycheck so we don’t

have to deal with it throughout the course of the year so this is gonna be

really really simple or as simple as I can make it so we’re gonna start with

the self-employment so we have to account for that 15.3% first but half of

it is deductible meaning half of it we’ll be taking off our total income or

a total taxable income as we do this math so let me walk through the math and

I think you’ll you’ll understand once I get through it so let’s start with this

math of $6,000 so $6,000 and we’re gonna have to figure out how much FICA is

going to come out of this $6,000 or what’s the other half of that half of

that unemployment tax now fifteen point three divided by two is seven point six

five percent so the first thing that we need to do is multiply six tiles

by 7.65 percent so it’s point zero seven six five and then we’re gonna multiply

that by six thousand and that’s gonna be four hundred and fifty nine four five

nine okay so four hundred and fifty nine dollars that’s what we’re gonna get

there so we need to take this math and this is gonna this is gonna look really

strange when we’re going through it but this is how the math is done so then

we’re going to take our six thousand and we’re going to subtract that amount

four hundred and fifty nine dollars and that is going to be five thousand five

hundred and forty-one five five four one okay so now we’re

going to take this amount and we’re going to multiply it again by the other

half so that’s again seven point six five percent multiplied this by point

zero seven six five and from that math we’re going to get four hundred and

twenty three dollars and 89 cents for two three point eight nine now this is

the half of our self-employment tax and this is the half that’s deductible so

what we’re going to do is we’re going to come back up here this is the deductible

part so what does that mean that means we need to take our net earnings of six

thousand and subtract our four hundred and we’re going to round this to four

hundred and twenty four four hundred and twenty-four so we’re gonna do that math

right there so six thousand minus 424 is gonna be five thousand five hundred and

seventy six five five seven six so this is the amount that we’re gonna have to

add to our total taxable income – or w2 income which is our fifty thousand

dollars so we’re gonna take our fifty thousand dollars now fifty thousand and

we are going to add this amount right here

we’re gonna add over five thousand five hundred and seventy six dollars five

thousand five hundred and seventy six and that is going to be fifty five

thousand five hundred and seventy six now this is the map amount that we’re

going to calculate our total taxable income now for this example fifty

thousand dollars six thousand is 1099 this is going to be

for a single so we’re going to use single tax brackets for 2020 because

we’re withholding moving forward which is going to end up being our 2020 taxes

so we’ll continue this math so we have fifty five thousand five hundred and

seventy six dollars and we’re single and we need to figure out how much we’re

gonna pay in taxes so as a single individual a standard deduction is

twelve thousand four hundred dollars in 2020 so what that means is we can reduce

this amount by twelve thousand four hundred dollars because that twelve

thousand four hundred dollars will not be taxable we’re gonna reduce our total

tax liability that’s why it’s called a standard deduction whereas before we

said this 424 was one half of self-employment we deducted that from

six thousand so it’s a similar thing right here

we’re deducting twelve thousand four hundred from this amount so it’s a

deduction reducing our total taxable income so 55 thousand 576 minus twelve

thousand four hundred dollars is forty three thousand 176 so forty three

thousand 176 so now we need to take this amount and we need to apply it to the

tax brackets so I’m going to pull those tax brackets up so you can see what they

look like and we’re gonna look right at somebody who is single so after the

standard deduction we’re gonna see that at zero to nine thousand eight hundred

and seventy-five dollars is at ten percent

so that first tax brackets at ten percent now I’m gonna reiterate at

twelve thousand four hundred that was at 0% so he paid no federal

income tax on this $12,400 so now we have to pay 10% on the first nine

thousand eight hundred and seventy five dollars so let me go ahead and write

this out just to make it a little cleaner and easier to follow let’s put

our zero right there our first twelve thousand four hundred

dollars right there and that is at zero percent which is zero dollars so we’re

going to add that nine thousand eight hundred and seventy five dollars to this

twelve thousand four hundred dollars which is going to bring us up to 22,000

275 twenty two thousand 275 and that that’s going to be our ten percent which

will be nine hundred and eighty seven dollars and fifty cents so this amount

this change right here was our nine thousand eight hundred and seventy-five

dollars which is that first tax bracket now the next tax bracket bring that up

goes from nine thousand eight hundred and seventy-five dollars up to forty

thousand 125 and that’s at twelve percent so that next

so going from nine thousand eight hundred and seventy-five going to forty

thousand 125 if we take forty thousand 125 and we subtract the nine eight seven

five that’s thirty thousand to fifty so that’s the range in between these two

numbers thirty thousand to fifty so the next thirty thousand to fifty so we’re

going to add thirty thousand to fifty to this 22,000 to seventy-five and what are

we going to get twenty two to seventy-five plus thirty to fifty is

fifty two thousand five twenty-five and that was that 12% so it’s 0.12

multiplied by thirty thousand to fifty which is thirty six thirty thirty six

thirty so it’s three thousand six hundred and thirty dollars now we’re

only at fifty two thousand five twenty five we still have a little bit more to

go because remember our total income is fifty-five thousand 576 so the remainder

so to get up to that fifty-five 576 we’ll put that here fifty-five 576 that

remainder is three thousand and fifty one dollars and that let’s go back to

our tax brackets and that is going to be at twenty two percent so every dollar

that’s over that forty thousand 125 is that twenty two percent so for us at

twenty two percent is going to be three thousand and fifty one dollars times

point two two is six hundred and seventy one dollars and 22 cents so that’s going

to be a twenty two percent and that’s going to be six seven one point two two

now we can add this 671 twenty-two plus this 3639 TV 750 and that’s going to

give us our total federal tax liability so let’s go ahead and add those up so we

have the six seven one point two two plus the three 3630 dollars plus nine

eight seven point five plus plus zero that’s it five thousand two hundred and

eighty eight dollars and seventy two cents now if this was our total income then

this five thousand two hundred eighty eight dollars and seventy two cents

would be what we would pay in from our w-4 but we also have to account for this

and that is times two because remember this is only one half so that is 848 so

we’re going to have to add 848 plus 250 to 88

72 we’re gonna round this out so we’re gonna make it 50 to 88 plus the 848 so

let’s go ahead and add those up plus 8 for 8 is 60 137 so let’s go ahead and

add those up that’s going to be 50 to 80 8 plus 8 for 8 is 60 136 that’s 6,000

136 now I don’t know about you but that was a lot of math to go through to

figure this all out but I wanted to show you the long way to do it so you can

really wrap your mind around how these taxes are calculated and how you can

save more money which I haven’t even shown you just yet but that’s what we’re

gonna get into so I’m gonna show you how to calculate this weight quicker than I

just went through and I’m gonna pull it up on the screen and you can follow

along with me now this is the IRS Form w-4 for 2020 and this is gonna help you

figure out all that math we just went through but it’s gonna do it a lot

quicker and what’s even better it’s not only going to calculate the math for you

it’s also gonna tell you exactly how much you need to put on your w-4 so you

could just take out these taxes and then go back to doing what you’re doing

you could go to work go do your side hustle and do whatever else you want so

here we go I can’t stress this enough that you should be doing the IRS Form

w-4 for 20/20 online it is a great fantastic the best-ever calculator that

you’ve ever had access to don’t put yourself through the pain of using the

new paper version it’s slower it takes a lot longer to understand and it’s not as

accurate and if you have a side hustle forget about it you can’t do it you got

to use the online version so stop what you’re doing if you’re doing the paper

version just put it down you can fill out the paper version from the

calculator that’s going to give you the answers it’s gonna produce the PDF at

the very end this is gonna be super simple so hopefully you’re doing the

online version so let’s go ahead and pull it up on the screen so you can

follow along with us so again I’m going to fill out it exactly the same way that

we just went through on the math so you can see that the two are going to match

up and you’re going to see how it’s going to be calculated so for this wall

through let’s go ahead and check off a single can some of those claiming it as

a dependent on their tax return we’re gonna choose no for this walkthrough no

for dependents and for income we’re gonna choose yes now I’ve gone through

this walk through a bazillion times so you have questions on different sections

and I’m just kind of zip in right through it go ahead and leave them in

the comments below or watch some of my other IRS Form w-4 videos that have

already done for 20/20 but this is going to show you how to calculate your

self-employment tax and pay it in the w-4 or with the w-4 so here we’re gonna

choose one job now this is one w-2 job now you’re

filling out the w-4 but if you have eight and if you’re an employee then

your w-2 your w-2 employee and you’re filling this out because you’re gonna

give the w-4 to your employee so this is one job that’s all we’re

gonna have here this is an addition to your side hustle okay we’re gonna fill

this out in a second we’re gonna say no on the pension now

here’s your here’s your side hustle income and it’s right here earn net

income from self-employment it’s that one two three fourth check box we’re

gonna check that off because on the next screen you’re gonna say we’re gonna

click Next so we have it right here our job so this

is our w-2 job we’re gonna check off yes that we’re gonna work here all year if

you’re not check off now fill it out we’re gonna get paid every two weeks put

what’s appropriate for you when’s the last time we get paid this is just a

walkthrough so I’m just gonna put whatever January 15th and the total of

wages that we expect to earn this year this is what we’re gonna put in our

$50,000 because that’s the example that I was shown before now if we go down

here how much we withheld already I’m just gonna make these numbers up

they’re arbitrary if your numbers are way different go to your last pay stub

to put them in here it’s gonna have your year-to-date numbers so don’t just look

at any pay stub look at the most recent pay stub and then put that answer right

there your to date and from last paycheck and if you’re looking at this

even if you’re earning 50,000 your answers could be way different because

you’re gonna withhold a different amount depending on what time

the year you are so this is early in the year so the amounts are gonna be on the

lower side but if you were filling this out later in the year you want to update

it later in the year then they might be significantly higher so don’t think that

if I put 500 and you’re putting 3 grand that it’s so much different that you

obviously made a mistake that’s not true you didn’t make a mistake just look at

your last pay stub we’re gonna continuously continue to scroll down

here and we’re gonna say no to the 401k for now and the HSA which is also

pre-tax that’s an also a deduction to your total taxable income now here is

our next check box down there or section whatever is our self-employment this

thing keeps jumping around our self-employment this is our net

self-employment income so for our example we’re in $6,000 that’s what

we’re gonna put in here we’re not gonna put in that five thousand five hundred

and seventy six dollars we’re gonna put the net self-employment income because

it’s going to do the math for us it’s gonna figure out what one half of

self-employment is subtracted do all the tax for us so that’s what’s nice about

this calculator so let’s go ahead and go to the next section we’re going to skip

any adjustments that we have and we’re going to go to the next section

and we’re gonna take our standard deduction the twelve thousand four that

I went through in the walk through no tax credits for this walk through just

to show apples to apples if you do go through them go through them because

this could save you a bunch of money so I’m gonna click Next and we’re gonna go

to this page okay here’s what I want you to look at don’t

look at the red you made it in red estimated underpayment that were short

we need to make an adjustment of course we do because we have that

self-employment income but here our anticipated tax obligation this is what

I really want you to look at look at that it 6137 what did we get on our math

six thousand one hundred and thirty six that’s just a rounding error so our math

was correct we did the math correctly so we’re gonna have to pay 6137 so here’s

what’s nice about this calculator you scroll all the way down tell us exactly

what to do not only that I’m going click on that second that download

prefilled form w-4 the PDF that’s gonna be great for us but let’s take a look at

this so this is what we need to actually put in selecting single so here we’re

going to enter 72 dollars in additional withholdings per pay period line 4c on

Form w-4 don’t even worry about that just literally click on this prefilled

form it’s gonna populate it for you so let’s go ahead and click on it actually

I’m not even gonna click on it because if I click on it I can’t come back to

this I guess it is just a flaw being on the iPad but anyways this is what our

tax liability is so here’s why it’s so important let’s go back for a second to

to our math so I drew out all of the different tax brackets so we had what we

paid at 0 percent 10 percent 12 and 22 percent now for a second if we look at

this we’re gonna pay roughly or we’re gonna pay the six thousand one hundred

and thirty seven or six dollars in total taxes but let’s say that we went in and

we put let’s just let’s just call it what it is let’s let’s put the top

amount into our retirement plan whether it’s your traditional IRA or a 401k

let’s put this three thousand fifty one dollars into our retirement plan and

here’s how it’s going to look when you look at the calculator let’s go back to

the calculator for a second so let’s go to that income and adjustments and we’re

gonna scroll down and we’re going to go back to this 401k plan now we have this

401k plan and we’re gonna save into it so I’m gonna put three thousand and

fifty one dollars okay let’s click on next

zoom out their next results let’s go to the results page or anticipated tax

obligation dropped to five thousand four hundred and sixty six dollars so let’s

take a look at the difference between the fifty four sixty six and we’ll the

tax obligation that we had before that is six hundred and

$71 but again let’s go back to our tax math on the brackets we were able to put

three thousand and fifty one dollars which saved us twenty two cents on every

dollar that we put into that 401k so we saved 671 dollars in taxes by putting

that money into the 401 K so it’s really important looking at these these numbers

that you’re going through the long math and you’re looking exactly what tax

brackets you’re truly in because if you just looked at the math and said okay I

earn fifty thousand I have a six thousand dollar side hustle roughly so

it’s fifty six thousand if you look at the tax brackets fifty six thousand you

might believe that you’re still in the twenty two percent tax bracket but that

you’re well into the twenty two percent tax bracket because you’re going to look

at this and say well I earn fifty fifty six thousand and the low-side is forty

thousand 125 so there’s nothing I can do to get out of that twenty two percent

tax bracket but once you start to add the standard deduction maybe you have

some 401k savings or maybe there’s other ways that you’re reducing your total tax

liability so that is going to greatly change how you do this math and maybe

how you save because the big difference here or a decision that I see quite a

bit is should I put this money into a Roth IRA or a 401k now this is a great

instance of why you should put the money into a 401k just to get below that tax

bracket because it’s the best bang for your buck it’s twenty-two cents on the

dollar for that three thousand fifty one

dollars in this particular situation now you might have the exact same situation

and it might be more advantageous to put it into the Roth IRA but that’s not

always the case so look a little bit closer so you can figure out what the

best move is maybe you can even save directly into your 401k or your Roth

depending on what your income limits are this is going to help you bring it all

together so there’s a ton of information out there on the Roth IRA is the best

investment vehicle that you can get well that’s not always the case

it’s about being strategic figuring out what is the best situation at any given

moment so it’s not always right to put into the four

okay or the Roth IRA and in this example I think it makes a pretty strong case to

put more money into your 401k just to get the best bang for your buck of that

22 cents on the dollar now in other situations other scenarios it might be

completely different in fact if you earn the exact same amount but your situation

is you have very low income here then maybe that makes sense to put it into

the Roth IRA and then the next year then put into the hora 1k there’s just so

many different variables to say that everyone should do the Roth IRA or the

401k but I hope this method shows you a little bit better way that you can fear

it out on your own and really make an informed decision if you’ve enjoyed this

video be sure to subscribe and leave your comments down at the bottom

Let's get straight to the point. The time codes are below.

2:09 Self Employment Taxes | Social Security | Medicare | FICA Tax

3:37 Self Employment Tax Example

8:14 Tax Bracket Calculation

15:00 W4 2020 with Self Employment Taxes

21:55 Tax Saving Tip