Tax life for the independent contractor is much different in comparison to an employee at a company that withholds income tax as well as Social Security and Medicare from their pay. Not only does the independent contractor have to manage their own taxes, there is also a whole new set of deadlines that they must pay attention to in order to stay compliant with the IRS.
Taxes You Need To Pay
As a self-employed independent contractor, it is your responsibility to ensure you pay both your income tax and your self-employment taxes. Self-employment tax includes your Social Security and Medicare taxes.
One of the biggest differences between working for a company that manages your tax withholdings for you and being self-employed is that you are now responsible for monitoring and withholding your own taxes. This requires a process of estimating how much you will earn in the course of the year and paying the appropriate amount of tax.
Independent contractors who expect to owe at least $1000 or more in tax at the time of filing are required by the IRS to make quarterly estimated tax payments. You are to use these payments to pay income tax and self-employment tax, including Social Security and Medicare taxes.
If you do not pay enough tax through these estimated tax payments to cover your tax liability, the IRS could charge you a small penalty. This tax penalty is either added to the amount you owe or deducted from your refund.
Due Dates for Tax Estimations
There are 4 tax payment periods each year. Each period has its own due date as outlined below:
Payment Period Due Date
January 11 – March 31 April 15
April 1 – May 31 June 15
June 1 – August 31 September 15
September 1 – December 31 January 15 of the following year
As long as you postmark your payment by the due date of each payment period, your payment will have a consideration of being on time. When due dates fall on a Saturday, Sunday, or a legal holiday, the payment will also have consideration of being on time as long as you make it by the next business day.
There are a couple of different ways to make your estimated tax payment. The IRS provides Form 1040-ES, which is a booklet that includes a worksheet to help you estimate your tax payments. The booklet also includes 4 payment vouchers that you can use when submitting payments by check or money order.
You can also make your estimated tax payments online using a credit card, debit card, or electronic funds withdrawal. This allows you to avoid sending vouchers.
Hacker Accounting has been working with independent contractors for many years now. We help them file their taxes correctly and on time to avoid penalties. If you are an independent contractor, give Hacker Accounting a call to find out how we can help. You can reach us at 602-375-5251.