Question for the Money Doctors
Question submitted on Feb 8, 2021.
QuestionTwo weeks ago, I started working for a small company (55 employees) as a full-time independent contractor. I've heard I have to pay all my own taxes and will have to file quarterly? As I have never been employed in this type of scenario, I have no idea where to begin.
This is a very good question. The first question - are you really an independent contractor? Many companies want to circumvent payroll taxes by calling their workers independent contractors. Under the current laws, it is more difficult to be classified as an independent contractor. Generally independent contractors are paid more than salaried workers because they have to pay the employer portion of the social security taxes and be responsible for their own insurance.
Assuming you are really an independent contractor, you will not have withholding for your income and social security taxes. You will need to make quarterly payments for Form 1040ES to the IRS and your state will have their version of the form.
This can get a bit tricky and complicated. We have seen many people get in trouble with their taxes when they do not make the estimated payments and did not set aside enough money to cover the tax bill.
I strongly suggest you find a local CPA to help you navigate through this. There are many considerations such as retirement plans and business expenses that you can deduct to lower your taxes.
Here is the link to the IRS Self-Employed Individuals Tax Center.
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