I received regular employment income reported on a W-2 for tax year 2018. However, I'm considering taking a contract job on a 1099, which I'm not familiar with and need your help please.
1. What are the taxes that I am required to pay on a 1099-MISC?
2. How do I estimate the tax percentage and tax amount?
3. How do I pay the income tax I owe to the IRS quarterly so that I don't have to pay 100% I owe at tax time?
Thanks so much!
1) Regular tax - Federal Income Tax - based on AGI - plus Self-Employment tax, about 15% of net SE income.
2) Most common rate for FIT = 22%; add 15% SE tax, around 40% of net income.
3) Pay estimated taxes directly to IRS on-line at https://www.irs.gov/payments
Hi Rainman,
Thank you for your answers and the quick reply. Much appreciated!
For question # 1, you mentioned paying Federal & Self-Employment taxes (approx. 40%).
- I understand Federal and State are the taxes that I have to pay regardless of W-2 or 1099.
- With the 1099, wouldn't I need to pay for Social Security and Medicare taxes?
- If yes, what are the percentages? I would need to add this percentage to the 40%, correct?
For question # 3, is there a form that I can use to calculate/estimate the 1099 quarterly tax amount to pay the IRS?
"Self Employment tax" (SET) is social security and medicare tax (known as FICA on your W-2 pay stub). SET is how the self employed pay their FICA.
If you already pay the maximum social security tax on your w-2 wages (wages over $132,900), then your SET would only be 2.9%.
TurboTax (TT) can prepare the quarterly payment vouchers. In your 2018 software, enter at:
Federal Taxes
-Other Tax Situations
-Other Tax Forms
-Form W-4 and Estimated Taxes - Click the Start or Update button
On the next screen answer No to the W-4 question
If your goal is just to avoid the underpayment penalty, then paying 100% of your prior year tax liability is the “safe haven”
Or you can obtain blank IRS Form 1040-ES from the IRS. The form and instructions are at this link: https://www.irs.gov/pub/irs-pdf/f1040es.pdf
You can also pay Federal directly here. Be sure to select 1040ES: