If I only worked as a contractor from October to the end of the year do I need to file estimated taxes or just file a 1040 for the year?

[mdegrushe]

I am now full time as of 1/1/22 but was a contractor from October through EOY 2021.  Wondering if I need to file estimated taxes for 4th qtr 2021 or do I just file a 1040 for 2021?

Thanks in advance for your assistance.

[DianeW777]

Perhaps.  If you had withholding throughout the year prior to your contractor work in the last quarter then you may not need to file estimated tax for 2021.

To determine if you need to file this may help.  First, you must track your expenses as well because your tax will be on the net profit.  

For self-employment net profit keep in mind that there are two parts to the tax.

1. Self-employment tax (net profit x .9235 x .153 = SE tax)
2. Personal Income tax (based on the rate at which your combined taxable income from all sources falls)
   • Depends on filing status, taxable income amount from all sources (for the entire year) and anticipated itemized deductions if applicable or the standard deduction
   • Use the Tax Rate Schedules in the Instructions Form 1040-ES to estimate your tax rate

Penalties are based on balance due, if you believe you have a refund then there would be no need for estimated tax payments.

[mdegrushe]

I only worked the last 3 months in 2021 and they were all as a contractor.   I am getting reminders to file for estimated by 1/18/22 but I am thinking I just need to file a 1040 as soon as I receive my 1099 from my employer.  I didn't have any taxes withheld for those months and filing a 1040 will tell me what I owe anyway.

[ThomasM125]

When you report your self-employment net income as a contractor, you are subject to income tax as well as self-employment tax, so you need to prepare for an additional 15% or so tax on your net income, in addition to what you would normally pay. So, it is possible you will owe taxes this year, and if the amount due is over $1,000, you may be penalized for late payment of tax. It would be prudent to calculate your net income from your contractor work (income minus expenses) and pay in estimated tax, based on your marginal income tax rate plus 15%, to keep yourself out of trouble.

[Opus 17]

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@mdegrushe wrote:

I only worked the last 3 months in 2021 and they were all as a contractor.   I am getting reminders to file for estimated by 1/18/22 but I am thinking I just need to file a 1040 as soon as I receive my 1099 from my employer.  I didn't have any taxes withheld for those months and filing a 1040 will tell me what I owe anyway.

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You owe a 4th quarter estimated tax payment due 1/18/22 unless you file your final return and pay the full tax you owe by 1/31/22.

You don't need to wait for a 1099-NEC because you should have your own accurate records of your income and expenses.  Certainly you should not report less income than is on the 1099, but if you had additional income not reported on a 1099, you need to include all your income.  However, you may be missing other tax paperwork that will not arrive until after 1/31/22 such as a W-2 or 1099-INT or 1099-B. 

The penalty for missing an estimated payment is only about 1% per month of the amount you owe, so there would not be too much cost to waiting, and if this is the first time you owed a penalty you can request a waiver.  However, it is probably a good habit to get into sooner rather than later.  

The penalty for not making the estimated payment will not be assessed as long as you owe less than $1000 when filing your return, or the total amount of your payments (withholding plus estimates) is at least 90% of your 2021 tax liability or at least 100% of your 2020 tax liability.  Remember that your self-employment income is subject to your regular income tax (probably 12%, 22%, or 24%) plus 15% self-employment tax.  And don't forget you may need to make an estimated state income tax payment too.