How do I file my taxes as a contract labor worker and what is the difference between that and normally filing?

Question

I just got a job at a small business. I was told i get taxed as a contracted labor person. I am 18 and i am unfamilar with this process. I also am unaware if it will cost me more to pay in. If someone could please assit me , i would appreciate it. Thanks!

Answer 1

This should not be used as a substitute for legal advice.

I believe the term that you are mean is an independent contractor. An independent contractor is not considered an employee. An employee of a company pays FICA and Medicare taxes. However, the employer matches the same amount.

In the case of an independent contractor, you would pay a Self-Employment tax (although you get a credit for half of the payment on your tax return). That Self-Employment tax essentially equals the full amount of FICA and Medicare (both what you would have paid as an employee and the employers matching contribution). So, in a manner of speaking, you do pay in a little more than a regular employee.

There are some benefits to being an independent contractor. You are allowed to "write off" certain business expenses on a Schedule C. These deductions would not be available to an employee.

Answer 2

Most any tax preparer can give you an estimate of the tax advantages or disadvantages. If you have other income this can be problematic if you have not planned ahead to include proper record keeping. The time to get advise is NOW. You may not need a CPA as they can be a bit costly but you do need the advise of a tax professional that has handled similar circumstances. Most any tax preparation company that is open this time of the year has someone that can help and most will do it for free in hope of you coming back at the end of the year.

Answer 3

as a contractor you will get a Sch. C, which is good because you can write off expenses then pay taxes on whatever is left over. for example, you made 1000.00 building a fence. if you paid for the wood, nails, and other materials, you write that off; about $100. your trip back and forth to work and buying materials is $50. Tools you used is $300. 1000 - 100 - 50 - 300 = $550. you get taxed on $550. you wil be self employment tax as well, an extra 15.3% on federal and probably 6-8% on state. so say 30% total in taxes you would pay. This works out to your advantage because instead of paying on the full amount of 1000 like most employees, you get to write things off for your work and pay on profits only. That is why owning your own business is better. because your last expense would be taxes, while for an employee taxes is the first expense because it's taken out when they recieve their paycheck.

Answer 4

You need to check out the IRS website http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

You will have to file 1040 long form, along with Schedule SE. I would suggest getting a good accountant, NOW. A lot of people aren't prepared for the amount of taxes that they end up owing. You are responsible for paying estimated quarterly payments. You can be fined if you owe too much at the end of the year.

See IRS Website for filing requirements: http://www.irs.gov/businesses/small/article/0,,id=115043,00.html

Be careful. A lot of "employers" will try to get people to be contractors so that they don't have to pay employment taxes. Also, if you get fired or lose your job, you won't be eligible for unemployment.

Please, look at the websites and contact an accountant so that you don't get burned!!

Answer 5

You will probably have to pay more, because they will consider you self employed and responsible for both the employer and employee contribution to social security and medicare. Additionally they not withhold taxes from your check, so you will have to pay taxes quarterly to the government. To make up for this, they should be paying you a higher rate than a normal employee.