1099 job - tax question

I accepted a contract 1099 position, but I am worried because I don’t know exactly how this works, in regards to paying the taxes. I had a previous tutoring job once that was a 1099, but I was there for a short period and know I didn’t make more than $400. I didn’t know how to pay the taxes for that, and never did. Not sure if it was an issue, because I never received a 1099 form from the employer and I was told not to worry about it since I hadn’t made much. Still, I tried to call IRS multiple times but every time I call there is no one to speak to directly.

This job pays a lot better, and so I want to make sure I pay my taxes. I was told by the lady who is hiring me that she will send me a 1099 form and that I just give that to my accountant who handles my stuff now. But, I read online that if I make more than $1,000 for the year, that I will need to pay quarterly taxes. I found instructions online on how to do that, but if I pay the quarterly taxes, then do I need to do anything at the end of the year? Do I still need to give the 1099 form to my accountant? My dad usually handles it and I don’t know who the accountant is that deals with my stuff, but I would like to with this situation. So, I made an appointment with an accountant. Is it possible a separate accountant from whoever was handling my previous taxes can help me instead?

Thanks!!

Can you elaborate on what makes this a contract position rather than an employee/employer relationship?

If you are contracting, you are self-employed. That means you are responsible for self-employment taxes as well as income taxes.

irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Yes, you will need to file your tax returns, and possibly pay additional income tax as well.

Yes, before accepting a contract position, you need to fully understand your costs, how to account for your income and expenses, self-employment taxes, and whatever other state level requirements there may be.

If you don’t think you are ready to take on all these obligations, don’t pursue contractor positions.

You might also want to have your accountant review the job itself, because sometimes unscrupulous employers will try to hire a “contractor” instead of an employee to avoid paying employment/payroll taxes and unemployment insurance.

1ke already gave good advice, but just to put your mind at ease about the previous work done, when I had some of that type of income several years back, you had to have made more than $600 before you were obligated to report it on your income taxes. When it’s less than that, they don’t see to want to bother with it. :shrug:

My wife was a part-time nurse, and one day she was all excited that she got a second part-time job as a ride-along in an ambulance transferring patients. The job seemed to pay well for the amount of time involved … until I did the taxes. Long story short, out of $750 she grossed on that job, she netted $350. I told her she was not to waste any more of her time working to pay taxes.

:o Right. I went just over the $600 benchmark in such a side job. I would have been better off working for free for the last several hours for all the extra taxes it warranted. Ah well, live and learn.

This isn’t accurate. You are obligated to report ALL income.

It’s the company hiring you that is impacted by the $600 minimum. They don’t have to issue a 1099 unless they paid you over $600. You still have to report everything you earn.

irs.gov/uac/Reporting-Miscellaneous-Income

I wondered why a middle class family was in the 114% tax bracket. Even Tip O’Neil admitted that the 40% bracket was never intended for the working man, but he never did anything about it. It took Ronald Regan.

My elderly parents had theirs done “professionally”. One year I took a look at it and discovered the “professional” entered their gross retirement fund contribution as an income. I helped them file an amended return and took over the job, figuring I could come within the $200 mistake. Then my sister and niece wanted me to do theirs. The worst of the lot was my niece’s; it took more time than all the others together because of her 401k.

The last month my mother lived, the IRS sent her a bill for $1.06. Technically she owed it, but I wondered who benefited besides the Post Office. Postage was 41 cents in those days. Times two made it 82 cents. That $1.06 got eaten up real quick.

Thank you for the correction!

Wasn’t there a protest group some years ago who filed bogus returns to overload the IRS?

As a contractor you will pay around 15% of net income for SSI tax, and another 10% for income tax. Therefore in your first year, you should save 25% of each check, and then send the amount saved quarterly as an estimated payment. Now your checks will be gross payment, but do it this way anyways. It will help you budget, and you could get a refund or credit after you file.

You need to learn what is deductible and this varies from person to person. Mileage can be a huge deduction but you can’t take it if you simply commute to the same place each day to work.

If you don’t understand all this very well, yes hire an accountant that you yourself can sit down and talk to.

The least painful way is to put the taxes away in a tax account as you get paid and file the taxes each quarter… You can consult your banker or a tax consultant on how to do this.

That’s not quite right. The $600 threshold only applies to the requirement of the person paying the money to prepare and issue the Form 1099. We all are supposed to report all income we receive even if we do not receive a 1099 for it.

The Peace of Christ,
Mark

For a 1099 contractor you are self-employed in the eyes of the IRS and therefore have to pay both sides of social security and medicare taxes.

So, for social security and medicare, you’ll pay 15.3% (7.65% for employer and 7.65% as employee).

Depending on what you anticipate you total income to be, you may or may not owe income taxes. Look at the tax bracket for 2015 to see which tax bracket you’ll fall into likely and set aside that percentage for income taxes IN ADDITION TO the self-employment taxes.

As has already been stated, you are obligated to report income no matter how much it is. The contractor just doesn’t have to report less than $600.

Going forward, think about this very hard before agreeing to be a “1099 contractor”. If you are inclined to call the person/company you’re doing work for your “employer” then odds are, you should be considered an employee. There is a big difference and very specific laws regarding this.

In reality, it STINKS being self-employed because taxes can be enormous. Don’t ask me how I know :rolleyes:

The best thing to do is to consult an accountant because there are so many variables in this. For example, you may still have to pay social security taxes even if you don’t make enough to pay federal or state taxes. There may also be some sort of local tax to pay also, e.g. to a city or county or transportation district. If you can be claimed on someone else’s tax return, then that affects the threshold for taxes you have to pay.

I did this, too, where I had to file my own self-employment taxes for several years.

I worked for an agency that did not take any taxes out of my checks. I would receive a 1099 at the beginning of the year for tax time.

Cupcake, it is definitely a good idea to talk to an account about your situation.

Since I am married–and was married at the time–we were able to change my husband’s tax withholding through his job, to help with my self-employment tax situation so that I would not have to pay quarterly estimated taxes.

So, it is a good idea to talk to someone about your own tax situation to get an idea of what you need to do, because you do have to report all income, as the others have mentioned.

Often times contract pay is MUCH higher and you have more net income after all the horrible taxes.

Yes, it can be higher. A lot of employers just don’t want the hassle of taxes and WILL pay you more to compensate. For example, if they’d pay you $13/hour as an employee, they may be willing to pay you $15/hour as a 1099 employee. As an employer (and we are one of those!), our expenses for employees are much more than any of our employees realize.

In addition to the FICA taxes, we have to pay state unemployment (1%), federal unemployment, and worker’s comp (3.8%) so for every $10 per hour paid, we’re in reality out closer to $11.35 for every $10 an hour (and our employees make more than that). We’d be out more if we had to pay someone to do payroll, but, thankfully, I’m able to do that for our business.

Taxes stink big time when you’re self-employed AND have employees……:rolleyes:

Thank you so much, to all of you! I am thinking about not taking this position. I don’t want to pay so much in taxes either.

Truly, the best thing you can do is to evaluate what you’re getting paid as a 1099 contractor (deducting 7.65% from the contractor rate) versus if you were an employee to compare. That’ll let you know what your TRUE wage rate is and if that is a satisfactory rate for the job you will be doing.

If it is, then you just have to be very self-disciplined in setting the tax money aside out of every check you get, which really is the hardest part :wink:

Thanks. 1ke pointed that out to me earlier up-thread. Mea culpa! I definitely do not want to mislead people and am glad to know better!

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