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guywithanaccountnow's avatar

Can someone answer a question about US taxes?

Asked by guywithanaccountnow (313 points ) February 9th, 2012

Let’s say the minimum taxable amount is $600. Then let’s say you make only $500 dollars and expect it to be all you make that year, and so spend it early on without paying taxes on it. But then, way later but in the same tax year, you unexpectedly make $100. $500+$100=$600. Does that put your yearly income into the taxable bracket now? Will you be expected to pay taxes on the $100 AND the amount you already spent?

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7 Answers

CWOTUS's avatar

In short, yes, you would have to pay whatever tax was owed on that amount.

To clarify, though, the taxes at the lowest end of the scale (assuming you make the minimum taxable amount and can’t come up with deductions to put you into a non-taxed bracket) are so low as to be minuscule. You’d be paying on the order of $5 – $10 or so, I expect. That is, you’d be paying a tax on the marginal amount you earned over that minimum income.

WestRiverrat's avatar

Unless you were a private contractor, you would already have had taxes taken out. You would want to file a return so that you get that money back.

john65pennington's avatar

This is such a small amount, that I doubt if the IRS would you require you to pay taxes on it.

If you were paid in cash, then there is no record of this income.

If you were paid by check, your employer should have taken out a few dollars for the tax. If so, ask your employer for a W-2, which should have this tax taken out and showing on the form.

JLeslie's avatar

I’m assuming the amounts you give as an example are just for example’s sake, and not the real dollar amounts. Basically, in a calendar year, if you earn enough that you need to pay taxes, then yes you have to pay taxes for the whole amount you owe, but if $500 is exempt from taxes, it still will be even if you made $600. So, making more money, so that now you are pushed into a particular tax bracket, does not mean all the money is now taxed, but all money must be reported.

For example, I’ll use bigger numbers, but made up ones. Let’s say someone makes $50,000 a year, and that is taxed at 20%. But during the year they have opportunity to make an extra $10,000 on a side job during the year. Let’s say tax bracket goes up at the point of $55,000. The first $54,999 will be taxed at 20% and then the last $5,001 will be taxed at the higher bracket whatever it is. Many people talk about not wanting to make more money that will push them into a higher tax braket, but they do not understand how the tax brackets work. There are people who understand, but choose not to work for more money once they get into the higher brackets, because the extra money at the higher bracket isn’t worth their time to them.

YoBob's avatar

Yep. The exempt amount is per year regardless of when you spend it or what you expected to earn before your unexpected windfall.

The good news is that even though you do have to file because your income is above the limit, you do not have to pay taxes on the exempt amount. That “standard deduction” is the tax free “freebie” that everyone automatically gets.

wundayatta's avatar

If the minimum taxable about is $600, then you pay no tax on any amount up to $600. If you make more than $600, you pay tax only on the amount greater then $600. Say you make $700. Your taxable amount is $100. If the tax rate is 20%, then your total tax liability is $20.

If you do not have automatic withholding, then you should set aside money to pay your estimated tax bill in full. So if you estimate that you will make $1000, you estimated tax bill would be 20% of $400 or $80. You would want to put aside one-twelfth of that every month ($6.67) for taxes.

You would not want to wait until you make more than $600 to start setting aside money for taxes. Let’s say you made $600 by November. You have two months to put aside $80. You have to set aside $40 per month, which would put a crimp in your usable income. Your budget would change dramatically at that point, had you not been paying taxes in advance.

JaneraSolomon's avatar

@YoBob has it right, you have to file, but the standard deduction for 2011 was $5,950 (for a single person), so until you’re making that much, you wouldn’t actually be paying any taxes. Further if you were working for reputable employers they may have already taken out taxes in which case your filing taxes will likely get you money BACK instead of costing you money.

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