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manuadoor01
Returning Member

How can one pay tax on each paycheck while working on 1099 MISC and avoid a huge payment at the year end ?

 
3 Replies
Opus 17
Level 15

How can one pay tax on each paycheck while working on 1099 MISC and avoid a huge payment at the year end ?

"paycheck" -- you are a 1099-MISC contractor only, getting periodic payments with no withholding?  Or are you an independent contractor at one place and a W-2 employee at a different employer?
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
VolvoGirl
Level 15

How can one pay tax on each paycheck while working on 1099 MISC and avoid a huge payment at the year end ?

Save the amount and send it in each quarter as an Estimated payment.

For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.

You must make quarterly estimated tax payments for the current tax year if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
 
- 2. You expect your withholding and credits to be less than the smaller of:
    90% of the tax to be shown on your current year’s tax return, or
  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

 To prepare estimates for next year you start with your current return, (if you can't get back into your return try this, On the Tax Timeline page you have to select Add A State to get back into your return).  But be careful not to change anything on your real return.

You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.

OR Go to….
Federal Taxes or Personal (Self Employed/H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button

Or here are the blank Estimates and instructions from the IRS…..
http://www.irs.gov/pub/irs-pdf/f1040es.pdf

The 1040ES quarterly estimates for 2017 are due April 18, June 15, Sept 15 and Jan 16, 2018.  Your state will also have their own estimate forms. You mail in the estimates with a check or you can do it electronically at the IRS and maybe your state.

To pay the IRS electronically See http://www.irs.gov/uac/Electronic-Payment-Options-Home-Page  

If you didn't owe or missed making the prior quarterly estimated payments and need to just calculate starting now, you can go though the Estimated Taxes section and just put $1 (one dollar) in for the quarters you missed.  Then it will only figure the current and remaining quarters.
VolvoGirl
Level 15

How can one pay tax on each paycheck while working on 1099 MISC and avoid a huge payment at the year end ?

Are you new to self employment and 1099Misc?

Some general info......  You will need to keep good records.  You may get a 1099Misc at the end of the year if someone pays you more than $600 but you need to report all your income no matter how small.  You might want to use Quicken or QuickBooks to keep tract of your income and expenses.  There is one called QBSE QuickBooks Self Employed that works with Turbo Tax and will give you a free online tax return next year.
 <a rel="nofollow" target="_blank" href="http://quickbooks.intuit.com/self-employed">http://quickbooks.intuit.com/self-employed</a>

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  You do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040.  The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 line 57.  The SE tax is in addition to your regular income tax on the net profit.

Here is some IRS reading material……

IRS information on Self Employment
<a rel="nofollow" target="_blank" href="http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center"...

Publication 334, Tax Guide for Small Business
<a rel="nofollow" target="_blank" href="http://www.irs.gov/pub/irs-pdf/p334.pdf">http://www.irs.gov/pub/irs-pdf/p334.pdf</a>  

Publication 535 Business Expenses
<a rel="nofollow" target="_blank" href="http://www.irs.gov/pub/irs-pdf/p535.pdf">http://www.irs.gov/pub/irs-pdf/p535.pdf</a>
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