Self-employment Income

• Whenever you earn self-employment income, such as through operating a business or providing services as an independent contractor, the payor must report your payments on a 1099 rather than a W-2 form, which only applies to employees. As a result, the payor is not responsible for withholding any taxes for you and generally provides you with the full payment. However, this exemption from withholding for nonemployee compensation doesn't relieve you from having to make periodic tax payments. You are responsible for making up to four estimated tax payments during the year. If you fail to do so, you are subject to various IRS penalties and interest charges.
  
  

Social Security Income Limitations

• If you earn income through employment, in addition to state and federal income tax withholding, your employer must withhold additional amounts to pay your social security insurance tax. However, the government limits the amount of your gross wages that are subject to the social security tax, and all earnings in excess of the threshold amount are exempt from withholding. In 2011, for example, the federal government imposes the tax on your income up to $106,800. If you earn more than this amount, the excess is exempt from the social security tax rates.
  
  

Employer Tuition Reimbursements

• Many employers offer their workers opportunities to enroll in school and receive a tuition reimbursement. If the employer has an "accountable plan," which is a written policy that clearly sets out the requirements for employees to receive the reimbursement and that doesn't favor highly-compensated employees or owners, the IRS allows the employer to exclude some of the reimbursement from your W-2. Effectively, this means that the reimbursement is not subject to the income tax and therefore is not subject to federal income tax withholding. However, the IRS limits the amount of tax-free reimbursements you can receive each year, which as of 2011 is equal to $5,250.
  
  

Business Travel Allowances

• If your employment position requires you to travel, even if just locally, you will not pay tax on the expense reimbursements you receive from your employer. Since these reimbursements are not subject to tax, those amounts are exempt from withholding regardless of whether your employer includes the reimbursement in your paycheck or makes a separate payment for them. For example, if your boss sends you to a client location in another state and you purchase an airline ticket, pay for two nights in a hotel and purchase reasonable amounts of food, you can receive a reimbursement for the entire expense without any tax implications.