When it comes to filing taxes as a freelancer or independent contractor, it's important to accurately calculate your income and taxes owed. Using a 1099 tax calculator can help simplify this process and ensure that you are paying the correct amount to the IRS.
A 1099 tax calculator takes into account your income, expenses, and deductions to determine your tax liability. By inputting your 1099 income, along with any business expenses and deductions, the calculator can provide an estimate of how much you owe in taxes.
Additionally, a 1099 tax calculator can help you plan for future tax payments by estimating your quarterly tax payments based on your income and expenses.
Using a 1099 tax calculator offers several benefits for freelancers and independent contractors, including:
Overall, a 1099 tax calculator can be a valuable tool for freelancers and independent contractors who want to take control of their tax obligations and avoid any surprises come tax time.
The gig economy is growing. So are the number of people working as 1099 contractors.
But being a 1099 contractor isn't always straightforward. It is especially confusing to file taxes. Are you technically self-employed? Or are you classified as an employee? Should you pay quarterly taxes? If so, how?
If you’re feeling overwhelmed, don’t worry; you’re not alone. We’re here to help. We’ve answered the most common questions about paying taxes as a 1099 contractor!
If you are an independent contractor, you are self-employed. This means that your earnings are subject to the Self-Employment Tax.
1099 vs W-2 Employment Forms
W-2 Form
This form is used by employers to report wage and salary information for employees. If you receive a W-2, it means you are considered an employee of the company. Employees typically have taxes withheld from their paychecks and may be eligible for certain benefits like health insurance, retirement plans, and paid leave.
1099 Form
The 1099 form is used for independent contractors, freelancers, and self-employed individuals who provide services to a business. As a 1099 worker, you are considered self-employed, meaning you are responsible for managing and paying your own taxes, including self-employment tax.
1099 vs. W2 Tax Withholding
W-2 Employees
Taxes are withheld from each paycheck. Employers withhold federal income tax, Social Security, and Medicare taxes. They also contribute to Social Security and Medicare taxes on your behalf.
1099 Workers
No taxes are withheld from payments to 1099 workers. Instead, you're responsible for paying all your taxes directly to the IRS. This includes self-employment tax (which covers Social Security and Medicare taxes) and quarterly estimated taxes.
1099 vs. W2 Benefits
W-2 Employees
Often receive benefits like unemployment insurance, workers' compensation, and employer-provided health insurance. They're also protected by labor laws, including minimum wage and overtime pay.
1099 Workers
Generally, do not receive these benefits and protections. They have the freedom to work for multiple clients and control over how and when they work, but they also bear the full burden of their business expenses and health insurance.
1099 vs. W2 Deductions
W-2 Employees
Limited in what they can deduct in terms of work-related expenses.
1099 Workers
Have more flexibility in deducting business expenses. They can write off costs directly related to the services they provide, such as home office expenses, supplies, and travel expenses.
1099 vs. W2 Taxes
W-2 Employees
Employers provide a W-2 form that outlines wages and taxes withheld. Employees use this information to file their tax returns.
1099 Workers
Clients provide a 1099 form for any individual or entity to whom they've paid at least $600 during the tax year. 1099 workers use this, along with their records of expenses and income, to file their taxes.
As a self-employed individual, you are generally responsible for estimated quarterly tax payments and an annual return.
You are responsible for federal and state (if applicable) taxes on your adjusted gross income. So the more tax deductions you can find, the more money you’ll keep in your pocket.
Filing an annual return
To file yearly taxes, you’ll need a Schedule Cform. Use the income calculated on this form to calculate the amount of Social Security and Medicare taxes you should have paid during the year. You’ll file a 1040 or 1040 SR to report your Social Security and Medicare taxes.
Filing quarterly taxes
First, calculate your adjusted gross income from self-employment for the year. (The more deductions you find, the less you’ll have to pay!) Use the IRS’s Form 1040-ES as a worksheet to determine your estimated tax payments.
The self-employment tax rate is 15.3% (12.4% for Social Security tax and 2.9% for Medicare). The self-employment tax applies to your adjusted gross income.
If you are a high earner, a 0.9% additional Medicare tax may also apply.
How much you pay will depend on various factors, including how much you earn and how many tax write-offs you find. Nevertheless, independent contractors are usually responsible for paying the Self-Employment Tax and income tax.
With that in mind, it’s best practice to save about 25–30% of your self-employed income to pay for taxes. And, remember, the more deductions you find, the less you’ll have to pay.
The easiest way to lower your payments is by using a mileage and expense tracker. The IRS understands it costs money to run a business, and only taxes your profits. It's important to accurately track and report your expenses, including mileage. By tracking your work mileage and expenses, you should be able to find thousands of dollars worth of tax deductions. Finding more tax deductions means that more money stays in your pocket.
Example: Sam uses Everlance’s #1 mileage & expense tracker to track his work mileage and expenses automatically. At tax time, he exports this information and writes everything off. He typically finds $6,500/yr in deductions.
Remember: The more deductions you have, the lower your taxable income will be, and the less you’ll owe to the IRS/the bigger your refund.
When you're self-employed or work as an independent contractor, you're responsible for paying your own taxes. This means you'll need to set aside a portion of your income to cover your tax liability at the end of the year. Here's a breakdown of how much you should set aside for taxes on a 1099.
Calculate your tax rate
The first step in determining how much to set aside for taxes on a 1099 is to calculate your tax rate. This will depend on your total income, filing status, and any deductions or credits you may be eligible for. Use a tax calculator or consult with a tax professional to get an accurate estimate of your tax rate.
Once you have your tax rate, you can use it to calculate how much you should set aside from each payment you receive as a 1099 worker.
Estimate your quarterly tax payments
As a self-employed individual, you may be required to make quarterly estimated tax payments to the IRS. These payments are typically due in April, June, September, and January. To avoid penalties and interest, it's important to estimate your quarterly tax payments accurately.
Consider using Form 1040-ES to calculate your estimated tax payments, or consult with a tax professional for guidance on how much to set aside for each quarterly payment.
Here is how to calculate your quarterly taxes:
1. Calculate your adjusted gross income from self-employment for the year.
2. Use the IRS’s Form 1040-ES as a worksheet to determine your estimated taxes.
If any of the following apply to you during the year, you may have to pay quarterly taxes:
- You expect to owe $1,000+ on taxes.
- You made $400+ in self-employed/1099 income.
For the full details, check out the IRS’s clarification: “Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.”
While the annual return is due on Tax Day (April 15th), quarterly tax payments are due every quarter. Make sure to pay estimated taxes on time.
The four estimated tax payments are usually due each year on the 15th of April, June, September, and January. If that date falls on a weekend or federal holiday, the filing deadline is pushed to the following business day. If you don’t pay on time, then you may be subject to a penalty.
Meet Everlance, the top mileage & expense tracker
Everlance is the top-rated app for mileage and expense tracking. Available for free on iOS and Android, Everlance allows you to automatically log your mileage and business expenses, classify as work or personal, and report with the click of a button. The average Everlance user saves $6,500 on their self-employed taxes.
When preparing for taxes, download your mileage and expense records. Then, hand them over to your accountant or import them directly into your tax preparation software. Money saved! 🎉
Your tax situation is unique—just like you! This information represents generalized tax information. If you need help with your specific tax situation, please reach out to your tax advisor.
