First year 1099 - independent contractor

[yvonne1777]

Hi, I just start on June 24, 2024 as an independent contractor in California. I didn't pay quarterly tax for Q2 2024 since the deadline was before my start date. Starting with Q3 2024:

1. Do I need to pay quarterly estimates for Federal income tax, self-employment tax, and California state income tax?
2. Are the quarterly estimates of income tax and self-employment tax paid together?
3. What forms do I need to file and how do I calculate the amount?
4. Where can I file the forms and pay the estimates for both Federal and California tax online? Would you please provide links if possible?
5. What percentage of the total tax owed needs to be paid in September 2024?
6. Is there any other type of tax that I need to pay as an independent contractor?

Thank you so much! Really appreciate it.

[K M W]

Congrats on becoming an independent contractor - with that comes tax rules that are very different than what you would have experienced as a W2 employee!

Since you started your business June 24, you would be subject to paying estimated taxes which will be due September 15 (for income earned June 1 - August 31) and January 15 of next year (for income earned September 1 - December 31).

You will want to look at making both IRS estimated tax payments as well as state tax payments. For the Federal tax return, your tax return will calculate your total tax - i.e. income tax and self-employment taxes, so you will be making quarterly estimated tax payments based on those taxes combined.  

Calculating the amount you need to pay quarterly can be tricky - as you will have to estimate your self-employment income and expenses, combined with any other income, deductions, or credits you may have, to determine the proper amount to pay in each quarter.  TurboTax has a Self-Employment Tax Hub with tons of resources, tax tips, tools, etc., including Self-Employment Tax Calculators. You can find our Self-Employed Tax Hub at this link:  TurboTax Self Employed Tax Hub  The IRS also has specific instructions on how to figure your estimated tax in IRS Publication 505 starting on page 21, located here:  IRS Publication 505 

For the Federal estimated tax payments, you may send estimated tax payments with Form 1040-ES by mail, or you can pay online, by phone or from your mobile device using the IRS2Go app. You can also make your estimated tax payments through an online account with the IRS, where you can see your payment history and other tax records.  You can make California estimated tax payments either via mail or directly online - here is a link to the webpage to do so:  Make a California Payment 

As to any other taxes you may owe outside of income taxes, you should seek local professional advice for that, as those taxes (items such as employment tax, excise tax, sales tax, etc) fall outside the scope of income taxes and the TurboTax product. California alone has over 30 special tax and fee programs, outside of income taxes, that encompass a broad range of activities and transactions.

[yvonne1777]

Thank you so much for the response. Do you mind I asking two more questions?

1. The self-employment tax is for Federal which should be paid to IRS; California doesn't have additional self-employment tax correct?

2. If I'm a little short on cash this quarter, can I pay less for Q3 estimate and pay more for Q4 estimate? For example, if I should be paying $5000 estimate per quarter, can I pay $2500 in Q3 and $7500 in Q4? Would there be a penalty?

Thank you for your time.

[K M W]

Hi, yvonne1777, happy to address any follow up questions you have!

First, you are correct - the self employment taxes only relate to the federal income tax return; California does not have a self-employment tax on their income tax return.

Second, the IRS generally presumes that income is earned ratably throughout the year, so they want the estimated tax payments ratably throughout the year as well.  So, if a person pays most/all of the estimated tax payments in the latter part of the year, the IRS can assess a penalty for not paying in enough during each quarter of the year.  Even if you were to get a refund, you can still be assessed a penalty. For example, let's say someone is self-employed and only made the fourth quarter estimated payment, but made sure to make the amount large enough to generate a refund.  Even though when they file their return there is a refund, the IRS can assess a penalty for not paying in during Quarters 1, 2 and 3.

NOTE: there is a way to pay in more taxes later in the year AND not be penalized for doing so.  If your income is not earned ratably throughout the year, you can pay quarterly payments based on the actual amounts earned each period. When you complete your tax return, you will have to complete a schedule showing how the income was earned in different quarters and how the payments made in each quarter were enough to cover the tax liability for that quarter. So, in your situation, if your business earned 25% of its income in the third quarter and 75% of its income in the fourth quarter, you can make the estimated tax payments lower for the third quarter and higher in the fourth quarter, then complete form 2210 of your tax return to document that the withholdings corresponded to the quarters when the income was earned.

If, however, this is not the case for you, then I would suspect the IRS will charge you for not making a big enough payment in the third quarter.

As a final comment, even if you are not able to pay the full amount of your third quarter estimated payment amount, you should pay as much as you can by the due date of the estimated payment, to reduce potential penalty amounts.