Tax Center Guide

How to use the Tax Center to calculate and manage your tax obligations

Tax Center Guide

The Tax Center helps you understand and calculate your tax obligations as a Mayhem seller. This tool provides estimates for both state sales tax and federal income tax withholding based on your orders.

What is the Tax Center?

The Tax Center is a dashboard tool that automatically calculates:

  • State Sales Tax: The sales tax you may need to collect and remit based on your buyers' locations
  • Federal Tax Withholding: Estimated federal income tax and self-employment tax you should set aside for your 1099 income

Accessing the Tax Center

  1. Navigate to your Orders page from the seller dashboard
  2. Click on Tax Center in the navigation menu
  3. View your tax summary and order-by-order breakdown

Understanding Your Tax Summary

Total Revenue

The sum of all paid orders (excluding canceled and refunded orders). This represents your gross income from sales.

Estimated Sales Tax to Withhold

The total sales tax you may need to collect and remit to various state tax authorities. This is calculated based on:

  • The buyer's state location
  • State-specific sales tax rates
  • The order amount

Estimated Federal Tax to Withhold

The estimated federal taxes you should set aside, including:

  • Self-Employment Tax (15.3%): Covers Social Security (12.4%) and Medicare (2.9%)
  • Estimated Income Tax (12%): A conservative estimate based on a typical tax bracket

Total Estimated Tax Liability

The combined total of sales tax and federal tax you should plan to set aside and pay.

Order-by-Order Breakdown

The detailed breakdown shows tax calculations for each paid order:

  • Order Date: When the order was placed
  • Product: The product that was purchased
  • Buyer State: The state where the buyer is located
  • Order Amount: The purchase price
  • Sales Tax: Calculated sales tax for the buyer's state
  • Federal Tax: Estimated federal tax withholding (27.3% rate)
  • Total Tax: Combined sales and federal tax for this order

Understanding Sales Tax

How Sales Tax Works

  • Sales tax is generally based on the buyer's location, not the seller's location
  • Different states have different tax rates
  • Some states have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon
  • Many jurisdictions have local sales taxes in addition to state rates (not shown in estimates)

When to Collect Sales Tax

Most states have economic nexus thresholds. Common thresholds include:

  • $100,000 in annual sales to a state, OR
  • 200 or more transactions in a state

If you exceed these thresholds in a particular state, you may need to:

  1. Register for a sales tax permit in that state
  2. Collect sales tax from buyers in that state
  3. File regular sales tax returns and remit collected taxes

Mayhem's Role in Sales Tax

Since customers pay you directly through PayPal, Venmo, or CashApp (on the Basic plan), you are responsible for:

  • Tracking your sales by state
  • Determining when you've crossed nexus thresholds
  • Registering for sales tax permits where required
  • Collecting and remitting sales tax

Mayhem does not collect or remit sales tax on your behalf.

Understanding Federal Tax (1099 Income)

Self-Employment Tax (15.3%)

As an independent business owner, you're responsible for the full amount of:

  • Social Security Tax: 12.4% of net earnings up to the annual wage cap
  • Medicare Tax: 2.9% of all net earnings

Regular employees have employers pay half of these taxes, but self-employed individuals pay both portions.

Federal Income Tax

In addition to self-employment tax, your business income is subject to federal income tax based on your tax bracket. The Tax Center uses a 12% estimate, which is conservative for most sellers.

Quarterly Estimated Tax Payments

If you expect to owe $1,000 or more in taxes for the year, the IRS requires quarterly estimated tax payments:

  • Q1: April 15
  • Q2: June 15
  • Q3: September 15
  • Q4: January 15 of the following year

Deductible Business Expenses

Remember, you can deduct legitimate business expenses from your gross income:

  • Mayhem subscription fees
  • Product materials and supplies
  • Shipping costs (if not reimbursed by customers)
  • Marketing and advertising
  • Business equipment and software
  • Home office expenses (if you have a dedicated workspace)

Your actual tax liability is calculated on net income (revenue minus expenses), not gross revenue.

Best Practices for Tax Management

Set Aside Funds

Recommendation: Set aside approximately 30% of your revenue in a separate savings account for taxes.

  • This covers both federal tax (27%) and average sales tax (3-7%)
  • Better to over-save than under-save for taxes
  • Any excess can be applied to next quarter or refunded when you file

Keep Detailed Records

Maintain records of:

  • All sales transactions (download from your Tax Center regularly)
  • Business expenses and receipts
  • Quarterly estimated tax payments
  • Sales tax collected and remitted

Track Sales by State

Monitor your sales volume by state to understand when you might cross economic nexus thresholds. The Tax Center helps with this by showing buyer states.

Review Quarterly

At minimum, review your Tax Center data every quarter to:

  • Calculate and make estimated tax payments
  • Check for new sales tax obligations in states
  • Update your tax withholding strategy if needed

Consult a Tax Professional

Consider working with a tax professional who understands:

  • E-commerce and online sales
  • Multi-state sales tax compliance
  • Self-employment and 1099 income
  • Small business deductions

Updating Your Business Information

For accurate sales tax calculations, ensure your business state is on file:

  1. Go to Account Settings → Payments
  2. Update or create your Payout Profile
  3. Enter your business address with accurate state information

Important Disclaimers

Estimates Only

The Tax Center provides estimates to help you plan. Actual tax liability depends on:

  • Your total annual income from all sources
  • Your filing status and tax bracket
  • Available deductions and credits
  • Local tax rates in addition to state rates
  • Your specific business structure

Not Tax Advice

This tool is for informational purposes only and does not constitute tax or legal advice. Always consult with qualified tax professionals for advice specific to your situation.

Tax Laws Change

Tax rates and requirements change regularly. The Tax Center uses current known rates but may not reflect:

  • Recent legislative changes
  • Special temporary tax holidays
  • Jurisdiction-specific variations
  • Industry-specific tax treatments

Additional Resources

Getting Help

If you have questions about:

  • The Tax Center tool: Contact Mayhem support
  • Your specific tax situation: Consult a tax professional
  • State sales tax registration: Contact the relevant state's Department of Revenue
  • Federal tax obligations: Consult the IRS or a tax professional

Conclusion

The Tax Center is a powerful tool to help you understand and plan for your tax obligations as a Mayhem seller. Regular use of this tool, combined with good record-keeping and professional tax advice, will help ensure you meet your tax obligations and avoid surprises at tax time.

Remember: It's always better to set aside too much for taxes than too little. Use the Tax Center estimates as a minimum guideline, and consult with professionals for personalized advice.