If you are being paid on a Form 1099 for tax purposes, you are considered to be self-employed.
The payer has no obligation to withhold taxes on your behalf.
Self-employed individuals are referred to as Independent Contractors by the IRS.
Simply put, an independent contractor is considered to perform the agreed upon work setting her own schedule, using her own methods, and maintaining her own, independent record of all income and expenses.
The IRS has many factors by which to identify an Employment Relationship . These include, among many others, working on a fixed schedule set by the employer, performing the work according to the employer's directions and policies and adhering to a dress code.
In your situation, the payer has determined that the services you'll perform do not constitute an employment relationship, and your income from the payor will be reflected the following tax year on Form 1099.
If you are paid on a 1099, the IRS considers you to be an Independent Contractor.
Accordingly, you must withhold your own taxes. It will be up to you to decide how best to pay state and federal taxes due on sums received for your work as a consultant. It's possible to make estimated Quarterly Tax Payments .
You will also be required to add additional forms to your tax returns other than those you are used to such as Schedule C, which reflects the income and expenses of the self-employed.
You may also be required to pay Self-Employment Tax.
There is a silver lining! TurboTax has a great Tax Guide For the Self-Employed.
We can also help you in How to File Self-Employment Taxes (Understanding the Forms & Process) as well as offer Live Help as you embark on your journey as a consultant.
