How do I pay taxes as a consultant when an employer is also withholding for me?

Question

I am starting a new job tomorrow, and my old employer asked me to consult. How do I pay taxes and social security as a consultant when my new employer will already be paying taxes for me through payroll?

Answer 1

Apples and organges. You now have two jobs -- one as a self employed consultant and another as a regular employee.

You'll file Schedule C or C-EZ to account for the consulting income and repated expenses. If the net profit from that is more than $400 you'll file Schedule SE to calculate the self-employment tax.

You can handle the anticipated tax liability one of two ways -- make quarterly estimated payments using Form 1040ES or ask your W-2 employer to withhold additional tax from your wages to cover the tax liability from the consulting gig.

Answer 2

You'll likely get a 1099 from your consulting income. When you do your return, you'll show those amounts on a schedule C or C-EZ along with any associated deductible expenses, and will use a schedule SE to calculate your self-employment tax on that amount. The numbers from the bottom of those two schedules will transfer to your 1040.

Your W-2 earnings will go right onto your form 1040.

If your consulting income is going to be anything substantial, be sure you have enough taxes paid in, either by increasing the amount withheld at your job or by making quarterly estimated payments to the IRS. Otherwise you could be in for a real shock next year when you do your taxes. On the consulting income, self-employment tax will be 15.3%, plus any income taxes due. And don't forget about state tax, if you live in a state that has one.

Answer 3

Just remember that you are working as a contract laborer. If he has other people that do the same job but are employees he has to hire you as an employee. If you are doing the same job you did for him as an employee, he cannot hire you as contract labor. When you agree to become contract labor you are responsible not only for your taxes, but must pay all of the social security, etc. As an employee, you have so much withhelp from your check and your employer matches it. You will now be paying the 15+% yourself. You need to keep track of all your expenses, mileage for your car because your social security will be based on your net profits and you will file a form C. Go to www.irs.gov and start reading. You also need to learn about paying estimated tax payments. Don't get caught at the end of the year and not have paid any taxes. The second year you are required to pay estimated tax payments or there are fines. Hope this helps. Best thing is go to www.irs.gov and learn for yourself. It isn't that hard if you keep good records and receipts for those expenses.

Answer 4

it is just as though you have 2 jobs. the one where you are consulting you have to treat as self employed and deal with all that comes with that..self employment taxes etc. I spent 2 years dealing with it...not fun. Check the IRS website to learn more about self employment taxes.

Answer 5

Its easy. You will just file your 1099 and W2 next year. All you have to do is make sure that you keep all of your business expense receipts. You should have a CPA do your taxes for you as they will know exactly what you can write off.