Self-employement taxes?

Question

My husband has recently become an independant contractor and I'm left to figure out the tax aspects of the deal. I know that 15.3% of the income is withheld for SS and Medicare, but what is % then for the actual Federal Withholding? I am guessing it's around 5% for the Ohio and school district, so any help yuo can give me would be GREAT!!!
Thanks!

Answer 1

Usually, if you are an independent contractor, no taxes are withheld. Quarterly federal & state tax estimates are required. You are correct w/ the 15% social security. You federal and state income tax estimates are a little more challenging. For Fed, you need to have either 90% of current year or 100/110% of prior year paid in after your 4th qtr etimate are taken into account (this is called a safe harbor).

It make be prudent during this first year of indep contractor status to pay in at safe harbor rates. To do this, you would take your 2006 taxes and subtract his W-2 fed w/h and your W-2 withholding for 2007 (if any). The difference should be paid 1/2 in the 3rd qtr and 1/2 in the 4th qtr. This doesnt account for the social security/self employment taxes that are due @ 15.3%. You may want to add that to each fed payment for the quarter on his 1099-misc wages during that quarter.

AS for state, I imagine that OH has a similar procedure. I would check the OH dept of revenue site.

Good luck.

Answer 2

Get blank copies of forms 1040, Schedule C, and Schedule SE, and fill them out with your best estimate of total 2007 income and expenses.
That should give you a reasonable estimate of your total tax for the year. Revisit and revise the estimates if things change.

Answer 3

The IRS has lots of good information on their website especially for small business owners and self-employed individuals. The following link is probably a good place to start.
http://www.irs.gov/businesses/small/article/0,,id=115045,00.html

Also, in order to calculate your estimated federal income taxes, the IRS has designed a form especially for that purpose. It is 1040-ES. It can be found at http://www.irs.gov/pub/irs-pdf/f1040es.pdf

Good luck,

Answer 4

Federal would depend on your total joint income for the year, and your dependents if any, and other deductions. You need to pay in approximately what you'll owe in federal income tax, and for state and local taxes also. Without knowing your income and other info, there's no way to even estimate what you'd need to set aside, and pay in quarterly.

Answer 5

if he is going to stay an independant contractor, and he makes over $30k year, he needs to incorporate and save on that 15.3% self employment tax.