Smarter tax payments for the self-employed in California
December 5, 2018
December 5, 2018
California, here we come.
The Golden State represents a major milestone for the bSolo team. As of today, we have the potential to make the lives of 4 to 5 million freelancers and self-employed folks a little easier with our quarterly tax assistant. In addition, the quirkiness of California’s tax rules required our team to swarm around this design problem and come up with an intuitive solution.
Without further ado, here’s why California’s so important to us, what’s so weird about their quarterly estimated taxes, and what we did about it.
California state of mind
California is where certain fearless and free-spirited individuals braved the Gold Rush, sought stardom in Hollywood, and built the tech boom of Silicon Valley.
“It makes sense that California’s a hub for the independent workforce, with a high density of people who have opted out of traditional work to design the lives they want,” says Neal Doyle, Sr. Product Manager at bSolo.
California’s home to 12% of all American workers, and about 12% of California residents earn income from independent work. According to the Bureau of Labor Statistics, that’s about 4.6 million freelancers and self-employed people who may be required to pay quarterly estimated taxes in a convoluted fashion.
Uno, dos, tres, quatro?
The word “quarterly” in quarterly estimated taxes is already a misnomer, but in every other state except California, it does at least mean four payments.
Since 2010, California’s independent workforce has followed the rule of three: three state payments that divide their tax obligation by 30%, 40%, and 30% respectively. Unlike the other states, no Q3 payment is required.
According to this schedule self-employed taxpayers in California are required to pay 70% of what they owe in the middle of the year, earlier than in other states. And on top of that, they still need to pay the IRS.
Designing for California
“As always, our main challenge is minimizing complexity. The California payment schedule isn’t intuitive. So how do we make it intuitive?” asks Meredith Lambert, Director of Product Experience at bSolo.
“In the California experience, you’ll see a breakdown of each of the three payments paired with short but helpful explanations. All you need to do is enter the dollar amounts and the service will automatically begin to save for those goals.”
Once California users set their tax goals, bSolo runs in the background to detect income and save for taxes whenever they get paid. But California’s unique tax process isn’t exactly top of mind when Q3 rolls around. “We designed for that,” says Meredith. “The auto-triggered emails for Q3 federal payment remind you that no Q3 state payment is due at this time,” says Meredith.
Nice, is that all there is to it? “Hardly,” says Neal. “Our database was designed to automate four tax payments, so we reworked a great deal of the back end to support California. But it’s worth it for us, because it’s not just about taxes—it’s as much about building future financial wellness for the self-employed.”