The gig economy influences great growth and popularity in independent contractor opportunities. Many people work both full time and part time as independent contractors. Some popular independent contracting opportunities include ride-share driving, freelance work, and much more! If you work as an independent contractor (or simply self-employed), it is important to understand the tax implications and requirements faced by independent contractors because when it comes to taxes, the independent contractor has full responsibility for withholding and payment!Why & Apply
To begin, I like to start my posts off by introducing the topic and discussing those who may benefit from the information provided.
So, why discuss taxes specific to independent contractors? Well, as an independent contractor or self-employed person, you are fully responsible for withholding taxes and making the estimated tax payments. Therefore, you must act smart and plan tax payments to avoid penalties and/or lack of sufficient funds. By understanding the independent contractor and/or self-employment tax rules, you will successfully do and file your taxes on time without penalty, which of course is the goal!
As stated earlier, the post will apply to anyone working as an independent contractor or self-employed individual. In other words, if you are not a W-2 employee, please continue to read. Instead of a W-2, an independent contractor receives a 1099-MISC. The 1099-MISC will reflect your total self-employment compensation. The 1099-MISC independent contractor compensation is subject to taxation.
I hope to answer all of your questions relating to paying taxes as an independent contractor, including:
- How independent contractors pay taxes?
- How to report and do self-employment tax?
- When to file and pay independent contractor taxes?
- Where to report self-employment income?
- How and when to pay estimated taxes?
Lets begin!
So, why discuss taxes specific to independent contractors? Well, as an independent contractor or self-employed person, you are fully responsible for withholding taxes and making the estimated tax payments. Therefore, you must act smart and plan tax payments to avoid penalties and/or lack of sufficient funds. By understanding the independent contractor and/or self-employment tax rules, you will successfully do and file your taxes on time without penalty, which of course is the goal!
As stated earlier, the post will apply to anyone working as an independent contractor or self-employed individual. In other words, if you are not a W-2 employee, please continue to read. Instead of a W-2, an independent contractor receives a 1099-MISC. The 1099-MISC will reflect your total self-employment compensation. The 1099-MISC independent contractor compensation is subject to taxation.
I hope to answer all of your questions relating to paying taxes as an independent contractor, including:
- How independent contractors pay taxes?
- How to report and do self-employment tax?
- When to file and pay independent contractor taxes?
- Where to report self-employment income?
- How and when to pay estimated taxes?
Lets begin!
Independent Contractor Taxes
As an independent contractor, you must pay self-employment taxes and income taxes.Self-Employment Taxes
Self-employment tax consists of social security and medicare. The self-employment tax is in addition to the income tax. Please utilize the Schedule SE found on the IRS website to calculate the self-employment tax. Also, remember as a self-employed individual, you may deduct 1/2 of your self-employment tax for AGI.Income Taxes
Like any compensation, you must report your 1099-MISC compensation for tax purposes. If your total self-employment income is greater than $400, you must file a tax return. So, where to report the self-employment income? You will report the income on the Schedule C (Profit or Loss from Business) and Form 1040. If you are not a self-employed trade or business, report the income directly to line 21 of Form 1040.Independent Contractor Estimated Tax Payments
As a self-employed individual, you must pay quarterly estimated tax payments if you expect to owe $1,000 or more in taxes for the tax year.How to Pay Estimated Tax Payments
You can use the Form 1040-ES found on the IRS website to calculate the estimated tax payments relating to your self-employment income. Additionally, you can pay the estimated tax electronically or via check by mail.When to Pay Estimated Tax Payments
As stated, independent contractors must pay quarterly estimated tax payments. The due dates include:- Q1 (Jan-Mar): April 15
- Q2 (Apr-Jun): June 15
- Q3 (Jul-Sept): September 15
- Q4 (Oct-Dec): January 15 (of following year)
Comments
Post a Comment