When do 1099 Workers Have to Pay Taxes

My question involves independent contractors in the state of: Florida

I am an employee for a self-employed business owner. I have been working for her since February, and she has me as a 1099. I've only made a little over 5k this year, as of Dec. 31. I had heard somewhere that if I was under a certain limit, I might not have to pay taxes. I'm also claiming independence for the first time on my 2015 taxes. I usually am a W2, so this is a different realm for me. Just to be safe, I've put 30% of my income in savings in the event I have to pay for taxes. Any guidance on this would be greatly appreciated!

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Quoting nwhite_2015

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My question involves independent contractors in the state of: Florida

I am an employee for a self-employed business owner. I have been working for her since February, and she has me as a 1099. I've only made a little over 5k this year, as of Dec. 31. I had heard somewhere that if I was under a certain limit, I might not have to pay taxes. I'm also claiming independence for the first time on my 2015 taxes. I usually am a W2, so this is a different realm for me. Just to be safe, I've put 30% of my income in savings in the event I have to pay for taxes. Any guidance on this would be greatly appreciated!

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If that is your total income for the year you won't end up paying any regular income tax, but you will have to pay self-employment tax, which is about 15.4% of your profit.

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Quoting nwhite_2015

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My question involves independent contractors in the state of: Florida

I am an employee for a self-employed business owner. I have been working for her since February, and she has me as a 1099. I've only made a little over 5k this year, as of Dec. 31. I had heard somewhere that if I was under a certain limit, I might not have to pay taxes. I'm also claiming independence for the first time on my 2015 taxes. I usually am a W2, so this is a different realm for me. Just to be safe, I've put 30% of my income in savings in the event I have to pay for taxes. Any guidance on this would be greatly appreciated!

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You might be illegally misclassified as an independent contractor.

See:

http://www.irs.gov/Businesses/Small-...ractor-Defined

That's your problem.

From the tax standpoint look into filing Schedule C - Business Income. If you kept records of your expenses that you incurred you might be able to mitigate that self-employment tax a bit by taking the appropriate deductions.

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Quoting nwhite_2015

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My question involves independent contractors in the state of: Florida

I am an employee for a self-employed business owner. I have been working for her since February, and she has me as a 1099. I've only made a little over 5k this year, as of Dec. 31. I had heard somewhere that if I was under a certain limit, I might not have to pay taxes.

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If you are truly self-employed and have earned over $400 in profit from the self-employment you must file a federal income tax return, Form 1040, along with at least Schedule C or C-EZ and Schedule SE. Schedule C or C-EZ are the forms used to compute your net income from the self-employment. That figure then goes on the Form 1040 as part of your gross income. It also goes on the Schedule SE as the starting point for computing your self-employment tax. The self-employment tax is how self-employed persons pay their Social Security and Medicare taxes. You will get credit with SSA for your self-employed earnings, which will be used later to compute your Social Security benefits.

So, if your net income from this activity was $5,000, then clearly you must file a federal income tax return. But whether you will actually owe any tax on that return will depend on exactly what your total income, deductions, and credits for the year are. Since I don’t have all that information, I cannot tell you if you will owe any tax. Prepare the return (or have it done by a competent tax preparer) and see what the bottom line is.

As Florida does not have any personal income tax, you won’t have any Florida income tax to worry about.

Note that going forward if you are an independent contractor or otherwise making self-employment income, not only are you expected to compute and pay taxes, you're expected to pay quarterly estimated tax throughout the year. You can likely skate by on safe harbor the first year, but you really should start looking forward to making the 2015 estimated payments starting in April.

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Quoting flyingron

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Note that going forward if you are an independent contractor or otherwise making self-employment income, not only are you expected to compute and pay taxes, you're expected to pay quarterly estimated tax throughout the year. You can likely skate by on safe harbor the first year, but you really should start looking forward to making the 2015 estimated payments starting in April.

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Good point. The form used for estimated tax payments is Form 1040-ES. (That link is for the 2014 form. The 2015 version will be available sometime early next year.) The instructions have worksheets to help you compute the correct amount of the payments. If you do not pay in enough either through withholding (i.e. on your W-2) or through estimated payments, you may be assessed a penalty. (While called a penalty, it is computed as an interest charge.) IRS Publication 505 explains these rules in detail.

Note that there are three ways to compute the Underpayment of Estimated Tax penalty: The short method, the regular method, and the annualized method.

The short method avoids complicated computations if you meet the eligibility requirements.

The regular method is for income that is steady throughout the year.

The annualized method often works out better if your income widely fluctuates throughout the year, like if you made a large part of your income in a short period of time.

You can also elect to have the IRS figure your penalty under certain circumstances per the instructions that you can find on the IRS website.

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Quoting adjusterjack

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You can also elect to have the IRS figure your penalty under certain circumstances per the instructions that you can find on the IRS website.

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You don't really need to make an election. The IRS will assess a penalty if you don’t do the penalty computation yourself. It’s not like the IRS will simply forgo the penalty if you fail to do something, after all. :D

It is better, of course, to pay the correct amount of withholding or estimated tax and avoid the problem unless you are good enough at saving and investing such that you’d make more through investing the money during the year than the penalty you have to pay the IRS for failing to make the estimated tax payments. No matter what, you need to have the entire tax paid by April 15 in any event.

If you are self-employed and you have paid the entire tax liability (amount) from the last year in the current year, you will not get penalized for an underpayment. You can make up the difference when you file your current year's taxes. Assuming you had more income.

If a person's sole income is $5,000 from self-employment it's likely they will qualify for EIC (if they're between 25 and 64). That will cover a big chunk of the self-employment tax. In any event, the OP would owe less than $1000 at the end of the year so there is no penalty involved.