When you work for a company as an independent contractor,
the person or company you worked for will send you a Form 1099-MISC at the end
of the year rather than a Form W-2. Because no federal, state, Social Security
or Medicare taxes were withheld from your pay, you are responsible for any
taxes due on the income. Have a question? Get an answer from tax advisor now!
Instructions
1 - Find your earned income in Box 7 under non-employee
compensation. If you were paid royalties, they will be recorded in Box 2 on the
form. Box 3 is for any other income you received, which could include bonuses.
If you had any federal or state tax withheld, this will be recorded in Box 4
and Box 16, respectively, but most independent contractors won't have entries
in those two boxes.
2 - Add the amounts in boxes 7 and 3 to get your total
income for the year. If you have more than one 1099-MISC, add all these totals
before calculating your tax liability.
3 - Calculate any business-related expenses you had during
the tax year and subtract them expenses from your total income. For example, if
the total income on Form 1099-MISC is $6,891, and there were no expense
deductions and no taxes withheld so the recipient is responsible for federal,
state and self-employment taxes on income of $6,891. Multiply $6,891 by 92.35
percent (.9235) to calculate the amount subject to self-employment taxes
($6,891 x .9235 = $6,364).
4 - Use the amount subject to self-employment tax to find
your self-employment tax liability. If the amount is under $400, you do not owe
any self-employment tax. If your total income is over $110,100, multiply the
amount subject to self-employment tax by 2.9 percent (.029) and add $10,574 to
that amount. If your total is under $110,100, multiply the amount by 13.3
percent (.133) to find your self-employment tax. For this example, the total
subject to this tax is $6,364. The formula is $6,364 x .133 = $846. Your
self-employment tax liability is $846.
5 - Figure your federal tax liability on your total income
using IRS Publication 15 for the current tax year (see example in Resources).
Keep in mind that your federal tax liability will be reduced by a standard
deduction or an itemized deduction and/or the earned income credit if it
applies to you. You tax liability also can be reduced by other payments and
credits.
6 - Calculate how much state tax you owe on the total income
(see Resources).
E File IRS Tax Extension
E File IRS Tax Extension
No comments:
Post a Comment