What if we could make tax withholding as easy for the self-employed as it is for employees?
Employees don’t need to worry about tax withholding — employers “withhold” part of each paycheck by setting aside a portion of your paycheck to send to the state and federal government. When taxes are due if you’re an employee (“W2 worker”) you’ll see how much taxes have already been sent in for you and then you’ll need to figure out how much taxes you owe for the year and settle up. If you’ve already sent in more than your total taxes you’ll be getting a refund (wohoo!), but if you’ve sent in less than your tax bill you’ll need to pay (uh oh..).
With Tax Vault we want to make taxes as easy for independent contractors (1099) and self-employed workers as it is for employees (W2). Here’s how it works:
- 🔌 Connect your bank account to Everlance Tax Vault.
- 🕵️♂️Everlance detects your independent income (payment from Lyft, real estate commissions, invoices, etc.).
- 🤖We automatically save 25% (or whatever rate is best for you) in a FDIC insured account for you. Essentially we’re automating what your employer normally does.
- 🏖Kick up your feet and relax knowing that at tax time you’ll have enough money for your taxes.
- Why is the automatic savings rate 25%?
- This is the default rate, but you can change it at any time in your Tax Vault Settings!
- How do I determine what rate I should use?
- If you paid taxes last year on independent income you can use something called the “Safe Harbor” rule to avoid any taxes or fees. You can read more about calculating estimated taxes and the Safe Harbor rule here. If your situation and the tax laws haven’t changed your effective tax rate will be roughly the same each year. For example if you paid $20k in taxes last year on $100k in revenue your effective tax rate is 20% so for this year you’ll want to set aside 20% of new independent income.
- Does this cost anything?
- Tax vault is currently free for a limited number of users who sign up! Get on the waitlist by downloading the app.
- Where is my money being stored?
- We are sending your money to our partner bank, the National Bank of Kansas City. It’s held there on your behalf in something called a FBO “For Benefit Of” account where the funds are FDIC insured up to $250k.
- Do I need to pay quarterly taxes? What are those?
- Great question! Tax Vault’s mission today is to help you save money as you earn it for taxes, but you may want to send those funds quarterly to the government, especially if you are expecting a large tax bill. You can read more about how to calculate and pay estimated taxes here.