![]() ![]() You can calculate your self-employment tax using Schedule SE on Form 1040.Īn additional 0.9% Medicare surtax applies to high-income earners since tax year 2013. ![]() For tax years 20, the self-employment tax rate is 15.3% (this rate is made up of 12.4% for social security, which includes old-age, survivors and disability insurance and 2.9% for Medicare. You’ll also have to pay self-employment tax, which covers the amounts you owe for Social Security and Medicare taxes for the year. You can file a Schedule C-EZ form if you have less than $5,000 in business expenses. Along with your Form 1040, you’ll file a Schedule C to calculate your net income or loss for your business. You’ll need to file a tax return with the IRS if your net earnings from self-employment are $400 or more. That means you’re subject to a different set of tax payment and filing rules than employees. Paying Taxes as an Independent Contractorįor tax purposes, the IRS treats independent contractors as self-employed individuals. Payers are required to have these completed and postmarked by the end of January each year. If you work with multiple people or businesses throughout the year, you may receive multiple copies of this form. If you earned less than $600, you still must report the income, but the payer doesn’t have to send you a Form 1099-MISC. There is one exception to this rule though. This Form 1099-MISC takes the place of a W-2, which traditionally employed individuals receive from their companies. Be mindful of how you decide to receive the payment though – some services like PayPal may charge a fee.Ĭome income tax season, the payer is required to send you a Form 1099-MISC reporting all of the income they paid you the previous calendar year. That means no federal income taxes, Social Security taxes or Medicare taxes are taken out before you receive the money. These payments are not considered a salary or wages for tax purposes because the vendor doesn’t deduct taxes. For example, the payer may mail you a check, pay you via wire transfer or send payment through an ACH deposit. As an independent contractor, it’s up to you and the payer to come to an agreement on when you’ll be paid and how that transaction will take place. How Is Independent Contractor Income Paid and Reported?Įmployees typically get paid on a consistent schedule, such as weekly, biweekly or monthly. The IRS considers someone to be an employee if the person who’s paying them to work can control what will be done by that employee and how it will be done. Incorrectly classifying an employee as an independent contractor could trigger a tax penalty. Take note: If you hire people to work for you in your business, you’ll have to decide whether to classify those people as independent contractors or employees. ![]() As long as you’re not classified as an employee, you can be considered an independent contractor. You could be considered an independent contractor if you operate as a sole proprietor, form a limited liability company )LLC) or adopt a corporate structure. Independent contractor status can apply regardless of how your business is structured. With that guideline in mind, there are a variety of careers that offer the ability to work as an independent contractor, such as: ![]() The key characteristic of an independent contractor is retaining control of how the work they’re being paid to do is performed. Who Qualifies as an Independent Contractor? ![]()
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