Independent Contractor Taxes
Are paid By The
Self Employed People
There are several differences between independent contractor taxes, and those paid by people who are considered employees. If you are employed by a sewer contractor company, you will get a check periodically, usually once a week or twice a month. The money you earn will be adjusted for withholding taxes. Money for Federal taxes is withheld as well as state and local governments, if applicable. When you are working for yourself, you must pay your income taxes yourself, and at the minimum, do it once a year.
Independent contractor taxes are paid by those who are self-employed. These people may have contracts with specific companies for work that is done throughout the year. They may have written contracts or verbal contracts. Often, they have no contracts at all and offer services to the general public.
Examples of these types of independent contractors would be accountants, dentists, plumbers or any person who gets paid for work by an individual. As long as a man or woman is getting paid by a client rather than an employer, they are an independent contractor. This is according to the Internal Revenues Service; and for independent contractor taxes, that is the only definition that matters.
If you are getting your revenue from individual people, you will need to keep track of your sales carefully to document your income. The IRS has ways of determining if your income is within a normal range for your profession, and if you try to under report your sales revenue, it could trigger an audit.
When a self-employed person work in a sub-contracting capacity for a business, they will usually get a 1099 form in January or February stating how much money was paid. This is done because the money paid to you is an expense to your client. A copy of this form is sent to the IRS, so come tax time if you do not report the income, the IRS will know about it.
Being self-employed means keeping a good set of books. Good record keeping can lead to lower independent contractor taxes in April. In general, any expense that is needed for you to make income can be deducted from your sales revenue.
Some of the laws can be tricky and self-employed people need the services of a good accountant much more so than people who have an employer. The important thing is to keep all of your receipts so you have proof of your expenses. A tax accountant can let you know what is, or is not, an expense for tax purposes.
One of the big differences when being self-employed and working for someone else is the requirement to pay self-employment taxes as well as income tax. Essentially these are social security taxes.
As an employee, this tax is deducted from your paycheck; when you are self-employed, you will have to pay the money directly to the IRS. In addition, the tax withheld from a paycheck is 7.5% with another 7.5% paid by the employer. An independent contractor must pay the full amount for social security, which is 15%.
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