How do I pay taxes as a new 1099 employee?

Question

I'm a new 1099 employee. How do I file taxes--quarterly? What's the first step? I'm new to this. I receive a paycheck every week, but since I'm not full-time, my employer doesn't take out any taxes. What do I need to do to report and pay taxes? My husband works full-time, and we've always filed a joint annual return in the past--how does this affect his filing?

Answer 1

They aren't taking taxes out because you are classified as a 1099 employee, not because you are part-time. And depending on your job duties, it might or might not be legal to classify you that way rather than as an employee, but that's a different topic. See http://www.irs.gov/businesses/small/article/0,,id=99921,00.html for more info on that. Sometimes employers illegally classify employees as independent contractors to avoid paying employer taxes.

When you file your tax return, you'll fill out a schedule C to show your income and any associated deductible expenses, then a schedule SE to calculate your self-employment tax which is 15.3% of your net income. The numbers from the bottom of those two schedules will then transfer to your 1040.

You can still file a joint return with your husband.

If you expect to owe $1000 or more in taxes, including both income taxes and self-employment taxes, you should file quarterly estimated returns and make payments with the return of the tax you expect to owe for that quarter's earnings.

Answer 2

From what I've heard and you'd have to set all this up with an accountant, is that if you are a 1099 employee you can write off a portion of your house as an office, claim a portion of your mortgage, your utility bills etc, write off your car if it's used for your job, the food you buy and the gas you use, even if you pay yourself a small salary you still have to show where the money is going, you will be showing how much money you take in and if all your deductions are not itemized then the IRS is going to start auditing. Showing that you are only paying yourself a small salary is sort of a red flag to anyone including the IRS. Consult an accountant to have this set up properly, the last thing you want to do is end up owing the IRS because you didn't claim properly. You'll have to pay taxes, there is no way you can ever get out of paying taxes, however, your tax deductions will be higher and therefore you'll get a better tax break.

Answer 3

You still can and probably should file jointly. If you are being treated as an independent contractor, and therefore will receive a 1099, you will report this income on Schedule C or C-EZ, and on Schedule SE.
You don't necessarily have to pay quarterly, but that is an option. If your husband is having enough witheld to add up to your joint 2006 tax liability, that will avoid an underpayment penalty, but you might need to write a big check at tax time (perhaps about 30% of your net earnings)

Answer 4

Assuming that you are a 1099 employee, I would start by saving 30% of gross earnings for Federal taxes and extra for State taxes. That includes 15.3% for Self-Employment (Social Security) taxes and 15% for Federal income taxes. You can file a 1040-ES to make your quarterly estimated payments.

As everyone else stated, you can still file a joint return with your husband. You will need to file Schedule C and SE with your tax return. Be sure to keep good records to record any job related expenses that you don't get reimbursed so you can deduct those against your income.

Answer 5

How do you determine if a person is an employee or an independent contractor?

The determination is complex, but is essentially made by examining the right to control how, when, and where the person performs services. It is not based on how the person is paid, how often the person is paid, or whether the person works part-time or full-time. There are three basic areas which determine employment status:

behavioral control
financial control and
relationship of the parties

You should have your employer take a look at the IRS's position on this matter before you all end up sitting through an audit.

Answer 6

The only thing I can add to clarify what may be missing from other answers is this:

The 1099 will not change the filing status. MFJ will still be appropriate.

Keep an eye on all expenses that are related to that part of the income. For example,

Record all 1099 business related mileage (home to office, client to client, office or job site to home.) We claimed 48.5 cents per business related mile for 2006. If you can justify the mileage, then put it on a mileage sheet, which you can print from the first link. If you don't have Microsoft Office, you can print the first copy at most libraries.

Learn what you can claim for your 1099 activities by going to the second link.

If you received any refundable credits for tax year 2006, (EIC, or Additional Child Tax Credit) and you expect that your 2007 income to remain the same, or close to it, and the criteria for the refundable credits has not changed, then just expect the amount re"funded" to you to be slightly smaller, because of the 15.3% of the business / contractor profit FICA tax assessed as part of your return. (Long paragraph for a hypothetical question.)

There may be strict parameters for how often you need to make payments on FICA and state, local and federal income taxes if your 1099 related profits are substantial. However, if the paragraph above this one does not apply to you, you may be able to solve this additional payment for local, state, and federal taxes by having your husband increase his withholding. When you click on the hrblock link, scroll down to the middle of the page for the link entitled "Use our Self-employment Tax Estimator."

Perhaps this is enough from one contributor.

I hope this is helpful to you.

Answer 7

1099 means you are contract labor and responsible for ALL taxes.start setting 30% of the earnings aside.If you file jointly,the taxes on your income will be at your joint filing rate.you will receive a 1099 for 2007 before March 31,2008 for your earnings in 2007.The IRS will also get a copy so it is not possible to "hide" this income.Common mistake is for those people receiving a 1099 to assume it is a regular type of income and "someone" withheld taxes.you are that someone and are responsible.

Answer 8

You get on the IRS site and file yourself.

Federal
State
Matching Medicare & SSI

Call (buy) the services of an accountant to get it set up. Best money spent. Plus, as a 1099, it's a business expense!!!

been there - done that