I am an independent contractor, how much am I really making?

Question

I just started an office job, and I am classified as an independent contractor. I found out that I have to pay more taxes as an ind. contractor, my employer told me to save half of my check for taxes! i am being paid $18/hr, does this mean that I am really only netting $9/hr after all is said and done? Thanks for your help!

After reading these comments and chcking the IRS website, I doubt I am an independent contractor by definition. I am a recptionist/administrative assistant, I have set hours, do what they tell me when they tell me and how they tell me. The place I work is a high-tech company, def. not a pyramid scheme as far as I can tell, the place is full of engineers.

Answer 1

Being an independent contractor means that you are actually self employed so this means a few big differences in taxes. For one you have to pay self employment taxes usually to the tune of about 30% (I believe it does vary some depending on your business). In addition to this you must pay your taxes at what ever tax bracket you are in ie 25% for most people and you must pay your whole social security (employers pay half when you work for them or 4.5 %). On top of all this if you are self employed the I.R.S. will want you to file quarterly taxes. The only advantages are that you can write of clothes, mileage, entertainment, and office space if needed for the job.

My advise to you is talk to an accountant (which will usually cost you) and becareful about what you claim you don't want to draw an audit down on your head.

Formerly self employed tileman

Answer 2

I am a little concerned about why an office job is classifying you as an independant contractor. Do you have confidence that the company you are working for is legitimate. (and by that, I don't mean just legal, but not a scam in any way.) Search the web, particularly the rip off reports and make sure this company doesn't have a bad wrap. Technically if you are an independant contractor, that suggests that you are charging $18 and hour for the service you are providing. Independant contractor laws are a little hard to understand or even relate to the real word, so be careful. Your job may not even be a legally classified as independant contractor work. What does your job entail?

If they are suggesting to you that you save your money to pay your taxes, then they are correct, however it is possible for your job to do so for you. The idea that you should save half seems a bit extreme, not to mention it also concerns me that they even gave you such advice. If you are truly and independent contractor, then your taxes aren't really their concern.

If you see the company on rip off reports, get out before your brainwashed....no, I'm serious. If you describe the job a little, I may be able to direct you into the areas you need to research regarding how legal it is to classify you as an independent contractor.

(FYI: If your job seems like a pyramid scheme type job, keep in mind many pyramid type business employ mass numbers of people to make money. They often hire them as independant contractors in order to save on payroll tax, minimize law suits, and have the ease of firing those who are onto the scheme and may alert others. Usually they are really stretching the law by doing this and could probably be fined tremendously. Generally you are NOT an independent contractor if: you are being trained by the company to do the job in the manner they have set; have a set timeframe in which you are required to be working or a timeframe you are not allowed to be working; supplied with work materials that you may need to complete your task; required to attend staff meetings, trainings, staff development days, etc." Usually an independant contractor is certified or atleast could be certified in the type of service they are providing.)

Anyway if all checks out, you would not be making $9 and hour because you benefit from writing things off on your taxes. Even clothing can be written off. However if you do not have the money to pay the taxes at the time they are due, you will be stressing stressing stressing. You can have taxes taken from your check if you want to save money that way.

Goodluck!

Answer 3

You'd pay the same income taxes as you would pay as an employee, both for state and federal. The difference comes in social security and medicare - if you are an employee, the employee pays half and the employer pays the other half - if you are an independent contractor, you pay both halves. So basically you will pay an extra 7.65% of your income in taxes than you would as an employee.

If you put aside half of what you take in, you'll have some left over. You need to file quarterly estimated returns on form 1040ES, and pay in the tax each quarter on what you made that quarter.

There are very few office jobs where you would legally be classified as an independent contractor - most of the time, the employer is just trying to avoid paying their employer taxes. See http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Answer 4

As an independent contractor, only amount you pay more than a regular employee is 7.65% social security and medicare taxes. Your federal taxes and state taxes are slightly less than what a regular employee pays, because your taxable income reduces by this 7.65% amount.

Many companies, especially when they are laying off people or don't want or can't afford to have a regular employees, keep some persons on "contract jobs" for a short fixed period. May be you have contract job, which is classified as an independent contractor.

Answer 5

If you make $18 and hour and work full-time, your pay is around $36,000 a year. This is not the 50% tax bracket. However, to be conservative, let's assume you are in the 25% tax bracket. In addition to this tax, you have to pay about 15% to SS and Medicare. So the total is 40%.

You can deduct expenses related to your job and you will not pay any tax on those expenses, using Schedule C.

Answer 6

As an independent contractor, you will be responsible for all of your taxes.

If you were a regular employee. the employer pays half of your SS tax, so as an independent, you will pay all of it.

The employer gave you good advice - save 50% of your pay to cover taxes. After the first full year, you will have a better idea of how much you will be paying.

Answer 7

Your information is and isn't proper. If you're unmarried and no youngsters then you'll earn the $9500 with out paying federal taxes (dont understand what state you're in). The quantity for married might be ONLY in case your partner had no sales. That $18800 is on your mixed earning no longer simply your sales. For every child upload an exemption of $3700. You will nonetheless pay self employment taxes, ie social safeguard and medicare, on all benefit over $four hundred on a agenda SE and dossier a agenda C to determine your benefit.

Answer 8

instead of just being an independent contractor (I was for years) another name for that is a business owner (one employee). YOu can write it all off, and pay almost no taxes if you do it right. And it's easy to do. Read the books on this from Robert Kiyosaki (on his website - lots of $10 books from a billionaire), and Diane Kennedy, a multi-millionaire tax expert on small businesses. google her website, and buy the ten dollar books. they are absolutely fantastic, very helpful. You'll end up making more than everybody else because of it.