Taxes for Clueless Independent Contractor?
I have been working as an Independent Contractor for my employer as of 9/11/08. I didn't have a paycheck by the 9/15 so I will be paying my income fro...
I have been working as an Independent Contractor for my employer as of 9/11/08. I didn’t have a paycheck by the 9/15 so I will be paying my income from 9/11 on by the 01/15/09 quarterly pay date for small businesses. By the end of the year I will have earned about ,400 from this job. The only deduction I have is about for transportation.
I also held another job earlier in the year from which I earned about 0. Social Security and Medicare were witheld, but not income tax. Altogether I will have earned under the ,200 limit for the entire year of 2008.
What I am unsure of is if I still need to pay income tax. My quarterly earnings are such that I would have earned a taxable amount had I earned that much every quarter, so I am confused about that.
Also, how much of the 15.3% SS&M do I need to pay? I’ve seen literature talking about how half of Social Security and Medicare is usually paid by employers, half of it can be deducted from net earnings…it’s all very very confusing to me.
If anyone can give me an answer, or clarify this that’d be great. I’m not in the market for consultants (I already know some.)
Laura B,
It appears from what you have stated is that you will have
1) Wages of $700.00
2) SE Income of $7400.00
If you are filing as a single taxpayer, no dependents and not a dependent of another, then the following applies
You have
Gross Wages $700.00 (W-2)
Independent
Contractor $7350.00 (Schedule C , SE)
Total $8050.00
Deductions
Standard
Deduction $5450.00
Exemption $3500.00
Total $8950.00
Without SE
Deduction
Taxable Loss ( $900)
You have no regular tax
You do have self employment tax
computation is as follows:
$7350 times .9235 = $6788 times .153 = $1039
1/2 is your SE Deduction =$520 This becomes a deduction against Gross Income. You tax comes from the self employment tax.
So you will owe $1039. You can bring down your SE tax by coming up with more deductions as a sub contractor.
You may consider
1)have business use of cell phone
2)have business use of internet at home
3) maybe some advertising expense
You can avoid penalty
1)pay last years tax 2007 yr
2)pay 90 % of current liability by 4/15/09
3) last estimate due 1/15/09 for 2008 yr
That is a lot to digest. Let me know if you need any more help. I also prepare income taxes. If interested contact financialguyhere@gmail.com
lol me too! my favorite site to find tax info is below. (and it’s organized extremely well) My guess is that taxes are yearly not quarterly. Social Security may need to be paid at the end of the year if you pay yourself a salary. otherwise put the 15% in some form of IRA (That’s a suggestion-not even a guess) However check out the IRS for FAQ’s about Independent contractors.
I have an explanation I frequently post here directed to apparently clueless independent contractors and, if you are asking relatively simple questions in this forum, no offense, but you qualify as clueless:
Some employers try to get around paying employment taxes (social security and unemployment) and other employee benefits like workers compensation insurance by improperly classifying employees as independent contractors. The basic issue is the amount of control the employer has over the worker. If you are an independent contractor, the employer can dictate what the final product looks like but not how you get there to produce it. If you are required to show up for work–personally–at a particular time, punch the clock, use the employer’s equipment and are paid an hourly rate, or another set rate based on time served, you are an employee. If you didn’t understand the difference when you posed your question, I would be even more convinced that you are an employee. What is your preference, Slotted or Phillips? Complete an IRS Form SS-8 to get an official ruling on your status. This will help you get unemployment if you get fired. When you file your income tax return, you can attach Form 8919 Uncollected Social Security and Medicare Tax on Wages and only pay the employee’s half of social security. You will still have to cough up all the income tax. IRS and the states are stepping up enforcement in this abuse area.
You are self employed or independent contractor. You will report your income and expenses on schedule C or C-EZ (Form 1040). This income is subject to SE tax at 15.3%. Read about self employed (or independent contractor) tax filing and payment of estimated taxes: http://taxipay.blogspot.com/2008/04/tax-filing-by-self-employed-sole.html
If that "transportation" you talk about is for getting from home to work and back, it isn’t deductible.
If you are single and not a dependent, the limit for the year where you’d have to pay income tax is $8950, and you are well below that.
You do have to file though, and pay self employment tax on the i.c. income – that’s for social security and medicare, and will be around $1046. If you are an independent contractor, the person hiring you is not your "employer", and doesn’t pay the employer half of social security and medicare, you pay it all. And as to the half that can be deducted from net earnings, that would only make a difference if you had any income tax liability, and you don’t, so it doesn’t matter.