Life's Changes!

[Fprincipi01]

Hi!

I just became an Independent Contractor. I understand that it is my responsibility to file both employer and employee taxes. I'm set to make $... this year but realize we are halfway into the tax year. Also, is the withholding amount impacted if I have a second job that pays $...? How much should I withhold, should I pay quarterly, and how do I transfer funds to IRS?

[conniem123]

Congratulations on your new venture!  Typically when you are an independent contractor you will file a Schedule C Profit or Loss from Business as part of your individual income tax return.  If you have set up a business entity, such as a partnership or S-Corp, those two types of entities file their own business tax returns.

As self employed, independent contractor filing a Schedule C, you report your business income and expenses.  You pay tax on the business profit, or your other taxable income is reduced by your business loss.  

Since you are expecting a business profit, that profit will result in federal income tax, and also self employment tax.  The self-employment tax is the self-employed person's version of the FICA (Federal Insurance Contributions Act) tax paid by employers and employees for Social Security and Medicare, and it's due on 92.35% of your net earnings from self-employment.  This is the tax you are referring to when you pay the employer and employee tax; it is the social security tax.  Typically an employee has their 7.65% withheld from their pay, and the employer matches the 7.65% and the employer submits the total to social security.  In the case of being self employed, you are responsible for both portions and this amount is included on your individual tax return you file each year.

You may chose to have more federal tax withheld from your second job by submitting a Form W4 to your employer.  You may chose to make estimated tax payments on your business profit.  You can use a tax calculator to estimate the tax that will be a result of your business profit.  It will be your choice to make quarterly estimated tax payments, but making the estimated tax payments could eliminate any underpayment penalties being accessed.  If you decide to make estimated tax payments, you make them online with the IRS.

Here are some of the resources discussed above;

tax calculator; https://turbotax.intuit.com/lp/ppc/2168?srqs=null&cid=ppc_gg_nb_stan_all_na_Calculator-CalculatorEst...

great resource for estimated taxes; https://turbotax.intuit.com/tax-tips/self-employment-taxes/the-self-employment-tax/L8xXjolB4

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

I hope you find this information helpful!

Connie