While historically, many people were employed full time by one company, it’s becoming more and more popular for individuals to have a few different income sources. Whether you’re an occasional Uber driver, an AirBNB host, or do work for a few separate companies on contracts, taxes can get complicated when you have multiple sources of income. If you are a contractor with tax questions or simply aren’t sure where you fall on the spectrum of contractor or employee, you’ve come to the right place. Here are a few things to know about filing taxes as a contractor versus full as a full time employee.
There are a few categories of self-employed individuals. The IRS has three categories under which they define self-employed persons:
- Those who have a trade or business as an independent contractor or sole proprietor
- Members of partnerships that hold a business or trade
- Those who fall under other means of being in business for yourself, which includes side or part-time businesses.
Taxes for Self-Employed Individuals and Independent Contractors
While there is some variation in taxes from contractor to contractor, most contractors will need to pay self employment tax and income tax. You will generally need to file a return once per year and file estimated tax each quarter.
Self Employment Tax
This type of tax includes Social Security and Medicare tax for those who are self-employed. This tax should be relatively the same as what one would pay who works for any type of company. While for most people who work for a company or entity the company would withhold these taxes, independent parties will need to deduct them for yourself. IRS Form 1040 details the requirements for self-employment tax, and our accountants at Clear Accounting Services would be happy to provide assistance!
You may also be unsure whether or not you need to pay self-employment tax depending on the type of work you do. These restrictions fall into two categories:
- Those whose net earnings from a self-employed position are more than $400 (not including church employees)
- Church employees whose income is more than $108.28
Income taxes are imposed on individuals and entities that vary according to income and profits. Self-employed individuals and contractors must pay these taxes as any other professional would. The amount one would pay varies according to earnings. To calculate income tax based on your earnings from self employment, you can use this calculator, and don’t hesitate to contact a professional if you need additional guidance.
How and When To Pay Your Self-Employment Tax
Now you know a bit more about taxes for self-employed individuals, now it’s time for the most important step: paying them! In order to file these taxes, you’ll need an Individual Taxpayer Identification Number (ITIN) or a Social Security Number (SSN). Then, you’ll need to file your Form 1040. This is typically done once annually with quarterly estimated. For more specific information pertaining to your business and circumstances, visit the IRS Self-Employed Tax Center.
Filing taxes can be complicated. If you are a self-employed individual or contractor help with your taxes, our team is here to help. To learn more about our in-person and online accounting services, visit our website today!
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