How does it work if you are paid on a contract basis w/ no taxes taken, how do you claim on your taxes?

Question

If I were to work for a tutoring company that pays hourly on a contracted bases and they don't take any taxes out of the paycheck, how would that work on your taxes come tax time? It sounds great, however I don't want to get "screwed" at tax time and have to pay a boatload in taxes on that income. Just trying to figure out if it is worth it to work on this basis....thanks for all the help!!

Answer 1

I'm guessing that you haven't taken the position yet from the wording of your question. Think hard about taking it! You'll need to pull at least 50% more in total income to likely make it worth your while.

You'll have to pay self-employment tax at 15.3% of the net income from this position, over and above the normal income tax. You will be able to deduct business expenses from the money your earn and that will help lessen the blow to some extent.

You should download the Form 1040ES package from the IRS website to help estimate your total tax liability and calculate the required quarterly estimated tax payments. Don't forget to include the self-employment tax in your estimates!

At the end of the year you'll file Schedule C or C-EZ with your Form 1040 tax return to claim the business income and expenses. You'll also file Schedule SE to calculate the self-employment tax. You'll take a credit for the estimated tax payments made throught the year and if you have estimated well you won't owe much or may have a small refund coming.

Answer 2

You would estimate your income every quarter and pay in the amount of taxes that you expect to owe with a quarterly estimated form 1040ES.

You'll be paying both halves of social security and medicare taxes, the half the employee normally has deducted and the half that comes from the employer matching what was deducted, so you'll pay 7.65% extra from your income for that - you'd be paying the employee side anyway if you were an employee, but the other half is extra since you wouldn't be paying that.

Answer 3

You are liable for all the taxes and, if the company doesn't take any taxes out... and that is legal... it's done in the shipping industry all the time... then at tax time YOU HAVE TO CAUGHT UP THE MONEY FOR TAXES.... Federal... State... Local... EVERY TAX... so you had better put some money back or you will be in BIG trouble at Tax Time,

Answer 4

you have to file a form quarterly with the irs estimating your earnings for the next quarter. you have to pay taxes in advance including social security (15%) when you file the next year you reconcile the amounts. if you didn't pay close to what you owe for the year you may have to pay a penalty.