California Independent Contractor Faced With Huge Tax Bill higher Than Her Student Loans

A California resident and new business owner uploaded a video recently to the popular social media platform Tik Tok outlining her 2023 taxes. She explained to her viewers, after filing her taxes, she was informed she would have to pay an outlandish $26,000 in taxes after making $100,000 last year. Known as “WestCoastFairy,” this California TikToker says that’s more than her student loans, more than she has in the bank, and she has no idea what to do next. 

The Video That Went Viral 

The TikTok video, which has since garnered widespread attention all over the country, was posted by 25-year-old WestCoastFairy on March 1, 2024. During the video she outlines that she has filed her taxes and is having really bad anxiety because she now knows that she owes the federal government $18,000 and $8,000 to California. Just because she made $100,000 as an independent contractor with her new business in 2023.   

She captioned the video, “Things need to change fast because if I’m making 6 figures and BAR[E]LY living, I can’t imagine what others are going through. Indeed its eat the rich, I fear.”

US Tax Brackets

Basically, because WestCoastFairy made $100,000 as an independent contractor last year, she is placed into four separate tax brackets. Per the Internal Revenue Service (IRS), she pays 10% on the first $11,000, 12% between $11,001 and $44,725, 22% from $33,726 to $95,375, and an almost unbelievable 24% between $95,376 and $100,000. 

WestCoastFairy paid $18,000 in federal taxes, which was 17% of her income, meaning her federal dues were technically spot on.     

Can’t Believe It 

In her video, WestCoastFairy says, “I literally can’t believe [it]… what is going on in America?” And there is zero doubt that anyone who listened to this young entrepreneur’s tale is wondering the exact same thing: What is going on? 

The first thing to remember is that this high total of $26,000 in annual taxes is not incorrect. 

California Taxes 

Now, addressing income taxes, it is important to keep in mind that every single one of the 50 states of America has its own regulations. California, for example, charges 9.3% tax on anyone who makes between $68,351 and $349,137.

Having earned an annual income of $100,000, WestCoastFairy falls into that category and would, subsequantly, have had to pay $9,300 in 2023. Despite this she only paid $8,000, hence the rumor that an accountant helped her save a bit through the process. 

Frustrated By The Surprise 

In her video, WestCoastFairy expresses that the most frustrating aspect of the situation is that she was unaware she would end up owing $26,000. She said she saved throughout the year, knowing that she would owe something, she didn’t think she would need to save that much.  

When WestCoastFairy’s 2023 taxes were outlined, she actually only paid 26% of her annual income, where most Americans will typically pay 30%. A lot of people think she should have been prepared to pay such a large lump sum.

Financial Experts 

According to data from the US Census Bureau, the United States saw nearly 5.5 million new businesses in 2023. Financial experts have been stressing the importance of having a solid understanding of federal and state taxes to new business owners. 

Well known finance expert Dave Ramsey has made the suggestion that any business owner or independent contractor should save at the very least 30% of each paycheck just for taxes at the end of the year. 

Starting A New Business 

Basically that 30% is typically deducted, at least partially, from every paycheck when you are employed by someone. This would mean that at the end of the year your taxes won’t add up to tens of thousands of dollars owed because you have already paid them. However, a good majority of Americans don’t pay attention to their paychecks. 

As people stray away from the typical nine-to-five work week, and venture off to start their own business, many of them won’t take into account that their taxes are no longer being pulled from their paychecks. 

Saved, Just Not Enough 

In the clip she posted on Tik Tok, WestCoastFairy explained that she had saved throughout the year, she just didn’t save enough.  

In addition to this, the young entrepreneur went on to explain that she spent a large percentage of her savings during the year for healthcare. She paid $10,000 for health insurance, as well as another $10,000 for out-of-pocket costs, none of which were tax deductible.

The Right Accountant 

For many Americans, including WestCoastFairy, a lack of understanding about their state and federal taxation system makes it extremely difficult for them to prepare.   

Meaning the best thing for new business owners to do is to hire a good accountant to explain how everything works from the very begining. 

New Ways 

Of the almost 10,000 comments on WestCoastFairy’s video, many offered up helpful tips on how she could cut back on healthcare costs for the year.  

A few mention that creating a Health-Savings Account (HSA) would significantly minimize both her healthcare costs and even her taxes at the end of the year.

Something Wrong With Taxation In The US?

Many viewers commented on the video expressing their frustrations with the United States taxation policy. Although the general consensus seemed to be that many feel as though they are being tricked by the system.  

The majority of Americans need to pay for an accountant to do their taxes for them to avoid the frustration of the system, especially because it is so confusing for most.