How do I report income as a independent contractor?

If you need help calculating your estimated payments, use IRS Form 1040-ES, try our income tax calculator or speak with a tax professional to get a more dialed-in estimate of what you might owe. Some common examples of information reports completed using information from a W-9 include Form 1099-NEC, Form 1099-K, Form 1099-INT, and Form 1099-DIV, to name a few. Your office qualifies as a principal place of business if you use it as the sole place to perform administrative duties.

How does an independent contractor pay taxes?

The backup withholding rate is currently 24% for tax years 2024 and 2025. Wages paid to the children are exempt from Social Security tax if they are under 18 and are not subject to federal unemployment tax if they are under 21. However, if you hire your spouse and you provide family health insurance coverage to employees then you can be covered on your spouse’s policy. The cost the insurance for employees is deducted on Schedule C, and reduces your SE income and tax.

Deductions

If you receive payments through online payment services such as PayPal, you may also receive a form 1099-K. Typically, you include Schedule C with your tax return to report the self-employed income—along with the deductions for your business expenses. When a significant natural disaster hits – such as a hurricane, earthquake, tornado, flood, wildfire, blizzard, or the like – the IRS will extend upcoming federal tax deadlines for affected taxpayers if a federal disaster is declared. The extended due dates apply to most federal tax returns and payments, including those for income taxes (including estimated tax payments), payroll taxes, and excise taxes.

• One thing you’ll likely notice on your 1099-NEC forms is that your clients don’t typically withhold income tax from your payments like employers do for their employees.
• But there are also many other types of 1099s — and therefore many other people who may receive this type of form.
• The most common self-employed retirement plan is a Simplified Employee Pension plan (SEP).
• Your personal income tax deadline as an independent contractor is the same as it is for employees.

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond.

This tax year, the IRS won’t charge Social Security tax on earnings above $168,600. However, you might have to pay an additional 0.9% in Medicare taxes if you earn more than $200,000 as a single filer or more than $250,000 if married and filing jointly. Running a side hustle or small business likely means more paperwork when it comes to taxes, but no worries!

Time and Attendance

Since Bill owes more than $1,000 in self-employment taxes—and that’s not counting income taxes he’ll owe once he’s done filling out his 1040—he needs to make quarterly estimated tax payments to avoid IRS penalties. Don’t forget that if your state has income taxes, you’ll also need to make estimated tax payments to your state. Check with your state’s business resources for deadlines and any required forms. The earnings of a person who is working as an independent contractor are subject to self-employment tax.

Online Payment Platforms

Such an agreement would simplify the tax compliance process for independent contractors, ensuring timely payment of taxes, while reducing the risk of the independent contractor being subject to IRS penalties or collection actions. When you’re an independent contractor, paying the government regularly throughout the year is your responsibility. You can estimate how much you need to pay the government each quarter by guessing what your total income for the year will be or by using the amount you’ve paid in estimated taxes the previous year. If you expect a tax bill of $1,000 or more for the current tax year, you must pay estimated quarterly taxes. This means calculating the approximate amount you’ll owe in income tax by the end of the year and then dividing that number by 4.

Self-employed individuals, including those who earn money from gig economy work, are generally required to file an tax return and make estimated quarterly tax payments. They also generally must pay self-employment tax which is social security and Medicare tax as well as income tax. These taxpayers may qualify for the home office deduction if they use part of a home for business. Getting a tax refund as an independent contractor is possible if you overpay on your quarterly estimated tax payments. If so, you’ll receive a tax refund after you file your annual income taxes.

Quarterly Estimated Tax Deadline

All personal income tax, filed with Form 1040, is due April 15 of each year. If April 15 falls on a weekend or a holiday, they are due the next business day. As an independent contractor, be prepared for additional tax deadlines. Now, in addition to your personal income tax deadline of April 15, you’ll also have both federal and state quarterly tax deadlines. The information provided on the W-9 form is used to determine whether the payee is subject to backup withholding and to report income to the IRS.

• Most likely you will either need TurboTax Self Employed online or TurboTax Home & Business desktop.
• The IRS is gradually phasing in new 1099-K reporting requirements for payments from third-party processors like Venmo and Paypal.
• Take your $100,000 in earnings and subtract $7,065 (half your $14,130 self-employment tax).
• ​With TurboTax Live Assisted Sole Proprietor, get unlimited expert help while you do your taxes, or let a tax expert file completely for you, start to finish.
• As an independent contractor, you work for yourself, which means you’re responsible for paying your own Social Security and Medicare taxes.
• If you’re using tax software, you’ll be prompted to upload it when you’re preparing your return.

Further, making it easier for independent contractors to pay their income taxes timely prevents the IRS from having to take costly administrative steps to collect any past-due income tax. For independent contractors, Section 901 of the discussion draft represents a turbotax independent contractor significant step toward simplifying tax compliance. By allowing businesses to withhold taxes on their behalf, the provision eliminates the need for contractors to keep track of quarterly payments, which can be a source of confusion and stress. Additionally, it helps ensure that workers pay their taxes in full and on time, reducing the risk of IRS penalties, interest, and collection actions. If you are paid $600 or more for your work for any individual client, you should receive a 1099-NEC from your customer.

One thing you’ll likely notice on your 1099-NEC forms is that your clients don’t typically withhold income tax from your payments like employers do for their employees. This is a pay-as-you-go system where employees typically pay their taxes throughout the year rather than all at once when they file their tax return. As a self-employed person you usually can’t wait to pay your taxes all at once either. Instead, you may have to make up to four estimated tax payments to the IRS during the year.

And then he bought a $2,000 laptop (used exclusively for business) and spent $5,000 traveling (by car and plane) to the theater companies. On January 30, 2025, a discussion draft of the Taxpayer Assistance and Service Act (“TAS Act”) was jointly released by Senator Mike Crapo, Chairman of the Senate Finance Committee, and Senator Ron Wyden, the Committee’s ranking member. The TAS Act represents a comprehensive effort to improve tax administration. Of the 68 provisions within the discussion draft, about 40 align with recommendations TAS advocated for in current and past Annual Reports to Congress and Purple Books of Legislative Recommendations. When TurboTax refers to your business, it means your small business, and not the company you are working for.

Knowing you have to pay that much on top of your income taxes may be disheartening. The good news is you get to write off half your self-employment taxes as an above-the-line deduction. Independent contractors aren’t employees of the people or businesses they provide services for.

But you’ll want to spend time estimating this because if you underpay your estimated taxes, you could be subject to penalties. Remember that an independent contractor is considered to be self-employed, so in effect, you are running your own one-person business. Any income that you earn as an independent contractor must be reported on Schedule C. You’ll then pay income taxes on the total profit. Let a local tax expert matched to your unique situation get your taxes done 100% right with TurboTax Live Full Service. Your expert will uncover industry-specific deductions for more tax breaks and file your taxes for you.

This article is part of BizTaxFacts, our Business Tax series on navigating taxes for self-employed individuals and small businesses. We’ll break down tax obligations and considerations, including deductions, credits, and filing across different working arrangements. You will be paying self-employment tax for Social Security and Medicare. You’re allowed to deduct 50% of what you pay in self-employment tax as an income tax deduction on Form 1040. This deduction is available whether or not you itemize deductions. You should set aside 15.3% of your earnings to pay for self-employment taxes and then another amount (10% to 37%) for federal income taxes, depending on your annual income and which tax bracket you fall into as a freelancer.

In 2021, Congress changed the reporting threshold from over $20,000 in payments and more than 200 transactions to over $600 in payments regardless of the number of transactions. But instead of using the new $600 threshold right away, the IRS applied the previous reporting threshold for the 2022 and 2023 tax years. For the 2024 tax year, the IRS is using a $5,000 threshold, regardless of the number of transactions.