I am doing a temp contract at a big name institution through a legitimate private company. I am told that I'll do a form 1099 when I complete the contract.
What is perpelxing me is that this private company is not witholding taxes from my paycheck. Once they witheld, but they soon made the adjustment and paid me back by deposting the amount witheld into my bank.
Anyone know what's the prudent thing to do? I am pretty certain they will have to report my income to IRS in early 2007 based on my experience in the workforce.
2006-10-01 04:10:29 · 9 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
True, but what do I do? Do I bring this up to my emplyer and tell him to withold and charge me for the amount he didn't withold?
2006-10-01 04:14:29 · update #1
Ok... Since I am going to be doing form 1099, would that mean that I'll just be paying the taxes when I do the tax return in early 2007 instead of now?
2006-10-01 04:18:05 · update #2
If you are getting a 1099 at the end of the job you will be responsible for all taxes when you file your income tax return. You are considered an independent contractor.
2006-10-01 04:14:48 · answer #1 · answered by anr 3 · 3⤊ 0⤋
If you are truly an independent contractor (you should look at the determination forms on the IRS web site), the employer does not have to withhold taxes. They become your responsibility. Be aware, though, that they could be twice what they are as an employee since some of the taxes are actually 50/50 with employers.
I suggest you start setting aside funds to pay your taxes with at the end of the year. They will almost guaranteed report your income to the IRS by sending you a 1099.
2006-10-01 15:13:06 · answer #2 · answered by misslabeled 7 · 0⤊ 0⤋
Yes, they will report your income to the IRS at the end of the year. You are considered an independent contractor, so are responsible for paying your own taxes. The employer won't withhold them. The form 1099 is what they will give you in place of the W-2 you'd get if you were an employee - you'll use the 1099 to compute your taxes for your annual return.
As a contractor, you are responsible for paying both halves (employee and employer) of the social security, so that's 15.3% in addition to whatever income tax you'll owe. Also, depending on where you live, there are probably state income taxes and might be local (city or municipality) taxes.
On the federal level, you must file and pay quarterly estimated taxes (form 1040-ES). If you just wait until the end of the year and send in the money with your annual return, you'll be subject to penalties and interest. You might have to also file and pay quarterly to other entities you owe, like the state.
2006-10-01 14:36:03 · answer #3 · answered by Judy 7 · 2⤊ 0⤋
A regular employee is treated differently than an independent contractor by the IRS. A regular employee receives a W2 form at the end of the year. As a regular employee, regardless of the number of hours worked, the company is required to withhold a portion of your pay check to be applied to income tax, social security etc. In addition, the company has to contribute its share of unemployment compensation as well as other fringe benefits.
As an independent contractor, you are not considered to be an employee of the company. You will receive a 1099 which is the gross amount of your earnings without any pay roll deductions. The company is not required to pay in the matching taxes or any fringes. In order to save on payroll expenses, many companys treat part time employees as independent contractors. What I think happened was they at the beginning, the payroll department probably made a mistake and treated you as a regulay employee. Then they made the adjustment once they discovered the mistake.
What you have to do now is to estimate what your annual tax liability is and put that aside. This is a typical problem for sales people on straight commissions. Because their income is so erratic, they tend to go from feast to famine. As a result, they tend to forget to make provisions for the income tax. At the end of the year, they get real frantic.
2006-10-01 11:39:20 · answer #4 · answered by robert S 4 · 1⤊ 0⤋
You're not an employee (and they're not your employer) you're an independent contractor, thus they don't withhold taxes.
You need to pay quarterly estimated taxes to the IRS. This is not as complicated as it seems. There is plenty of information on the web to help you find the right forms and figure out how much your estimated payments should be.
One important point. In addition to the FICA you would pay as an employee, you'll also have to pay 'self employment tax' which is essentially the 7% FICA you employer would have paid.
There are benefits to all this. You get to deduct expenses incurred in doing this work and it comes from the gross. You'll also get to contribute to a SEP-IRA retirement account.
2006-10-01 11:29:44 · answer #5 · answered by Oh Boy! 5 · 2⤊ 0⤋
Yes, anramz is correct. You pay the taxes at the end of the year (or actually in 2007) when you file your income tax.
By the way, since you are an independent contractor, you can deduct expenses related to your job, i.e. transportation, meals, etc.
2006-10-01 11:19:03 · answer #6 · answered by Anonymous · 0⤊ 0⤋
You will have to pay your own taxes that is why they are having you sign a 1099. I suggest that you with hold some of your wages to pay these taxes.
2006-10-01 11:21:01 · answer #7 · answered by mysticideas 6 · 0⤊ 1⤋
Hey go to this IRS web site and start doing estimated tax payment before you get scre*ed by the feds.
http://www.irs.gov/businesses/small/article/0,,id=110413,00.html
2006-10-02 11:58:30 · answer #8 · answered by Kenshin 5 · 0⤊ 0⤋
They have to report it.
2006-10-01 11:12:25 · answer #9 · answered by St♥rmy Skye 6 · 0⤊ 1⤋