IRS 1099 Contractor Requirements

The Internal Revenue Service (IRS) separates all workers into two categories: employees and self-employed individuals, including independent contractors. Independent contractors are people who are in business for themselves, rather than employees who the IRS views as working for the company. At the end of the year, instead of receiving a W-2 form to document taxable earnings from an employer, an independent contractor receives a Form 1099-MISC and has to calculate taxes differently.

Other People Are Reading

  1. Tax Withholding

    • When you are paid as an independent contractor, you do not have any money withheld from your taxes for income taxes or payroll taxes. However, the IRS does not give you a free pass to not pay anything until income tax time. During the year, you must make at least quarterly tax withholding payments to pay for your taxes. You can determine how much you need to pay based on either your projected earnings and projected tax bill or based on the previous year's tax bill. Many prefer using the previous year's tax bill, because it gives a specific amount that must be paid to avoid IRS penalties. This calculation is different from calculating your total tax bill at the end of the year.

    Payroll Taxes

    • As an independent contractor, you do not have an employer to split the Social Security and Medicare taxes with. Instead, you must pay the entire amount yourself, under the self-employment tax. As of 2013, the Social Security tax rate equals 12.4 percent for the first $113,700 you earn, and the Medicare tax equals 2.9 percent of your entire income. The IRS requires you to fill out Schedule SE to calculate how much self-employment tax you owe if you make more than a certain amount. For 2013, you are required to pay self-employment taxes if your income exceeds $400 in self-employment income or more than $108.28 in church income.

    Taxable Income

    • If you are paid as an independent contractor and receive a Form 1099-MISC, you are eligible to deduct business expenses directly from your earnings on Schedule C, which is the form used to document your independent contractor income. For example, you can deduct car expenses and other costs to buy products involved in your business on Schedule C, rather than having to claim the expenses as itemized, miscellaneous deductions.

Related Searches

References

Resources

  • Photo Credit contractor using drywall lift image by Joy Fera from Fotolia.com

You May Also Like

Related Ads

Check It Out

Make-at-Home Vs. Takeout: Pumpkin Pie