April 13th, 2004

default, pepper


Yes, it's tax season, the time of year during which even diehard Greens secretly rant like Grover Norquist. (Although without the wacko Nazi references, hopefully.)

It's a particularly rant-inducing year for me, since 2003 was the first year in which I became an "independent contractor," essentially self-employed. This means I get to deal with self-employment tax, the strange entity that replaces FICA and those other withholdings that come out of normal paychecks which aren't, strictly speaking, income tax. (Here's a trick: compare the amount that's being withheld from your check for actual income tax with the total amount being withheld for everything else. If you're making the median national income level or below, the chances are pretty good the former number is lower than the latter. In my case, my "effective tax rate" for income was 10.2%, but the self-employment tax is another 15.9%.) And, it also means that I no longer get to file my old friend the 1040 EZ. In fact, I'm at the full 1040, with Schedule C (small business) and Schedule SE (self-employment) and, oh yes, Form 2210 (you didn't pay estimated tax and you suck, neener neener). And then there's California income tax.

And of course, none of this was withheld, so that total 26.1% gets paid right now. It is a number which is, interestingly, very close to 26.1% more money than I actually would have if I emptied my checking account, savings account and the jar of coins on the dresser. I have a check for four weeks' pay in process, but it doesn't look like it'll arrive until Friday. (And there's likely to be a hold on it for a week, because it'll be over the amount that triggers an automatic hold at my bank.) So tomorrow, or perhaps later tonight, will be a call to the IRS to set up a hopefully very short-lived payment plan, assuming that doing that won't cost more than just paying the whole bill a couple weeks late.

The one ironic thing I'm taking away from this is a greater dubiousness of the idea that government-managed withholding is intrinsically bad. Sure, if you're getting a tax refund it means that in a sense you loaned money to the government interest-free, but you know, in exchange for using the 1040 EZ, I can live with that. A quick poke at Excel tells me that if I took the "overpayments" that went into a $600 refund and put them, twice a month, into a savings account with a generous 1.5% return, I would have an extra $4.33. I know for the anti-tax guys, it's a matter of principle, but -- at least when I'm being objective -- I'm not anti-tax. (This is something I should write about more over at Barking at the Moon sometime, I suspect.)

The software engineer in me, though, looks through the twenty-odd pages of tax forms I've filled out and wonders if the current system couldn't be streamlined a wee bit.