Employee to Independent Contractor

[KRvetteLT1]

My partner is currently an employee and they are restructuring their company. All employees are required to become independent contractors by January 1, 2023. We have set up an LLC with an S-corp election already. We have established a reasonable salary for him. We are both 50/50 shareholders. How do I compute estimated quarterly payments for this?

[Kelly Thomas C]

It depends on if you will be taking W2 compensation and having federal and state tax withheld from your payroll check. The business will pass through net income to you on the K1, so it is not expected for you to calculate an estimated tax on that income. The only income you are expected to pay periodically is on your W2 paycheck. If you don't expect to pay the shareholders W2 compensation rather 1099, then you will want to make quarterly estimates of approximately 20% of that 1099 compensation. That a good baseline number to start with, 15% for self employment and 5% income tax. That's is just a quick and easy rule of thumb. 

I hope this is helpful to you.

Kelly C

CPA