1099 NEC - How do I/Do I need to calculate estimated Quarterly tax?

[justarabbitfortaxes]

I receive a 1099 NEC from my employer. This is my only source of income and it is around $3000/yr give or take a little. I am listed as an independent contractor and as if I am running a business, but it is more like "Hey, can you do this for me?" and then I will get paid. I am not running a business in which I provide these services to the general public. Last year when I filed taxes, my taxes owed was a little over 400, which was then reduced and I ultimately had to pay a little over 200. My questions are:

Do I need to make quarterly payments?

If so, how do I calculate this amount?

Is there a quick and easy way to make an estimation for quarterly payment?

Do I need to pay taxes to the state (NY) as well? if so, how and where? How is THAT calculated?

If I take on other self employed work, are the steps I need to take the same or different from what I need to do now?

I have seen the forms for calculating estimated tax, but find them very confusing. I am looking for a step by step process that details how to use/follow the necessary forms and how to make the calculations the forms ask of you. For example "Take the amount earned in the year and subtract 'X' to get 'Y' and then place that number here..." etc. I have been just filing my taxes during tax season and paying whatever is asked of me, but I would really like to understand what I am doing, how to do it, why I am doing it and if I even need to! Thanks for any help!

[conniem123]

Hi justarabbitfortaxes!

Thank you for your questions.  When you receive the Form 1099-NEC, you are classified by the IRS as an independent contractor, and are taxes as self-employed.  The reason you file as self-employed is you pay federal tax on the income, but also self-employed tax, which is your social security taxes.  That is the why you are filing.

The do you need to file question; the IRS requires you to file an income tax return if your net earnings from self-employment were $400 or more.

You are not required to make estimated tax payments, but you could end up owing the IRS an underpayment penalty in addition to the taxes that you owe. The penalty will depend on how much you owe and how long you have owed it to the IRS.

To estimate your tax payments, you need to come up with a good estimate of the income and deductions you will report on your federal tax return.   You can always look at your Schedule C from your 2022 tax return and make estimate your business income and business expenses for 2023.  You can also take your estimated business profit and calculate the estimated tax by following the steps on your 2022 Schedule SE.

The above is a step by step calculation, but once you know your estimated business profit, you can then use the TurboTax Calculator to estimate your taxes, https://turbotax.intuit.com/tax-tools/.

New York does have the same requirements for paying estimated taxes if you want to avoid the underpayment penalty. 

I hope this information is helpful.  Have a great day!

Connie

[Faith C]

Hi justarabbitfortaxes,

Thank you for asking and providing us the information. Although the $3,000 you received is your only source of income. It will trigger Self Employment tax which is about 15.3% of the net income. When reporting self employment income, there are some deduction you could use to reduce your net income and tax liability and here is the article What self-employed expenses can I deduct?  for your reference. 

Regarding to Quarterly Tax Payment, I would suggest the following steps:

1. Do a good bookkeeping to find out the net income for your business.

2. Use tax calculator to estimate how much tax you may owe (pls include all income sources).

3. See if there is a need to adjust your tax withhold. You may update Form W-4 with your employer.

4. If you owe more than $1000 in tax, pay estimated tax by January 15th.

Doing estimated tax payment can help you avoid under payment penalties if: 

• Your filed tax return shows you owe less than $1,000 or
• You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less.

For the NY state tax, here is the article may help: How do I calculate and pay my New York estimated tax payments?  

We hope the above information has answered your questions. Please feel free to contact us if you have any further questions. 😃  We appreciate for your business and thank you for choosing TurboTax Live! 

[justarabbitfortaxes]

Thank you so much for the reply! This really helped clear up some of the confusion.

[justarabbitfortaxes]

Can I estimate how much income I might make for the year, multiply that by .153  for the tax, and get an estimate of self employment tax for the year? And then divide that into 4 payments? Thank You for the help!

[Faith C]

Yes, you can. Just a friendly reminder the self employment income tax is based on "net income" not gross income. You may also pay more stimated tax by 1/15 if you found you owe more tax.