How much do I put aside if I am 1099?

Question

I WAS getting paid straight cash but now i'm going to be paid as a 1099. Typically, how much should I withold from my check each period so that I can pay the tax man next year?

Answer 1

Getting paid in cash vs a check makes no difference.

If you should be putting 30% aside now, you should have put 30% aside when you were getting paid in cash.

Answer 2

That depends on how much you'll be making total, but as a rule of thumb, around 30%.

You do realize that you were legally required to report and pay taxes on your "off the books" income, and not doing that is tax evasion - if and when the IRS catches up to you, you'll owe the back tax plus interest and penalties.  The only real difference between "off the books" and 1099 is that the 1099 makes it a sure thing that the IRS knows about it that year.

Answer 3

about 38%

Answer 4

Read more about self employed/Independent Contractor tax filing: http://taxipay.blogspot.com/2008/04/tax-...

Answer 5

First, "off the books" is illegal.  It is a felony called tax evasion.  They send people to prison for that.  You owe tax on all income that isn't classified tax exempt by law.  So whether you receive a 1099 for your income or if it is just cash handed to you, it all needs to be declared.

Second, there is more to being "a 1099" than just holding some back for the end of year tax filing.  The income tax system is a "pay as you go" system.  The govt doesn't want to wait until next April to receive their cut of money you may have made as much as 16 months earlier.  There are penalties added if you do make them wait.

When you receive pay and don't have withholdings,  you are required to pay estimated quarterly taxes.  You should download Form 1040-ES from http://www.irs.gov and look through the instructions.  The form includes the 4 quarterly vouchers you need to mail with your estimated payments.

As "a 1099" (non-employee) you have to pay both the employee's and the employer's half of social security and medicare taxes.  That comes to 15.3%.  Then another 15-25% for income tax depending on how much you make and what kind of deductions you have.

Don't forget to download the estimated tax forms from your state too.  They don't want to wait until April for their cut either.  That is usually between 3 and 7% depending on your state and how they tax people.

If you want some more info, check out these articles:

http://www.irs.gov/businesses/small/arti...

http://www.irs.gov/businesses/small/arti...

http://taxipay.blogspot.com/2008/03/w2-o...