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jsa321
Level 1

Independent Contractor

As an independent contractor for a company, working on an hourly basis - should I set up a separate business account for the payments that they will be giving me? Or is it fine to put in my personal account as if I was a full-time employee via direct deposits?  

4 Replies
kdevere
Employee Tax Expert

Independent Contractor

Ideally, you would have a business account for your business income and expenses, it makes the accounting side of things much easier.  That way, any expenses that you incur in pursuit of that self-employed income don't get blended with your every day non-business life expenses.

However, you don't have to have a separate account, it would be permissible to use direct deposit for those payments as you will receive a 1099-NEC at the beginning of the year reporting the payments to you.  My concern would be the expenses incurred, so if you prefer to use just the one account, make sure you are keeping track of your expenses to reduce your tax liability.

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jsa321
Level 1

Independent Contractor

What estimated % should I set aside for tax purposes?  Do I have to pay quarterly?

Cecil_Yates
New Member

Independent Contractor

Thanks

kdevere
Employee Tax Expert

Independent Contractor

Below are the tax rates for 2022, so depending on your filing status you can estimate based on what tax bracket you end up in.  Then you would need to add the additional Self-employment taxes for Social Security and Medicare taxes.  

The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

For 2021, the first $142,800 of your combined wages, tips, and net earnings is subject to any combination of the Social Security part of self-employment tax, Social Security tax, or railroad retirement (tier 1) tax. The amount increased to $147,000 for 2022.

 

You can get an estimate of your income by forecasting your income/sales/service revenue and then deducting known expenses to arrive at a taxable income amount.  If you filed a Schedule C last year for a similar SE activity, you can use that as a guide, and lastly you can use our software to estimate your tax payments!  More info on how to do that in this link:

 

https://ttlc.intuit.com/community/taxes/discussion/how-do-i-get-the-forms-and-amounts-for-2021-estim...

 

Tax Rate For Single Filers For Married Individuals Filing Joint Returns For Heads of Households
10% $0 to $10,275 $0 to $20,550 $0 to $14,650
12% $10,275 to $41,775 $20,550 to $83,550 $14,650 to $55,900
22% $41,775 to $89,075 $83,550 to $178,150 $55,900 to $89,050
24% $89,075 to $170,050 $178,150 to $340,100 $89,050 to $170,050
32% $170,050 to $215,950 $340,100 to $431,900 $170,050 to $215,950
35% $215,950 to $539,900 $431,900 to $647,850 $215,950 to $539,900
37% $539,900 or more $647,850 or more $539,900 or more
Source: Internal Revenue Service
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