How to File Taxes as an Independent Contractor

If, after reviewing the information, you are still not sure whether a worker is an employee or an IC, file Form SS-8 with the IRS. The IRS will review the evidence and officially determine the worker’s status. This is especially useful for businesses that repeatedly buy the same type of services. With limited exceptions, if you pay an IC $600 or more for services provided during the year, you must fill out and file a Form 1099-NEC, Nonemployee Compensation. Before the 2020 tax year, Accounting Periods and Methods this type of payment was reported as part of the Form 1099-MISC.

How are taxes calculated for independent contractors?

Filing this form isn’t always required if certain exemption criteria are met. Independent contractors, sometimes called freelancers or gig workers, can help businesses better control workforce costs and meet demands when workloads increase. To take full advantage of these benefits, however, employers must understand how to pay these individuals in accordance with payroll tax codes. Knowing what to file for taxes as an independent contractor is crucial for avoiding penalties and potential issues with the IRS. However, navigating the world of tax filings and the IRS audit process for those who work independently from corporations and standardized employment can be a challenge.

Self-Employed Tax Deductions Calculator 2023-2024

For employers, having accurate independent contractor tax forms allows you to accurately track and report payments to the IRS. Filing taxes as an independent contractor involves a few key steps. First, you’ll need to file Form 1040 along with Schedule C and Schedule SE to report your income and expenses. If you receive over $600 from a client, you’ll get a Form 1099-NEC, which you’ll also need when filing. sub contractor tax form Don’t forget to make quarterly estimated payments if your tax liability is expected to exceed $1,000. Keeping accurate records can help you claim deductions on business expenses.

Which forms do you need when reporting payment to an independent contractor?

Independent contractors are hired for their services on a project-based or fixed-term basis. The independent contractor receives monetary compensation from the employer, but does not receive other employee benefits. However, when you seek out foreign independent contractors, it’s important to know how to do so legally. There are documentation and compliance tasks required by the IRS when it comes to hiring across borders, and you want to make sure you follow all rules and requirements.

• Before 2019, some small businesses could use Schedule C-EZ, a simplified version of Schedule C. However, the IRS eliminated Schedule C-EZ, requiring all businesses to use Schedule C moving forward.
• Once you have everything compiled, complete Form 1040 using the information from Schedule C and Schedule SE.
• Typically, when a contractor gets a Form 1099 from a client, some of those blue boxes are going to be filled in—with the contractor’s name, address, the TIN they entered on Form W-9, and other info.
• If the IRS audits your records and finds that you did not withhold taxes correctly, you could be held responsible for the unpaid taxes.

How to File Taxes as an Independent Contractor: Tax Forms, Deductions, and Credits for Freelancers

Additionally, you must also pay the matching employer portion of Social Security and Medicare taxes as well as pay unemployment tax on wages paid to an employee. Generally, you do not have to withhold or pay any taxes on payments to independent contractors. If you made more than $400, you need to file an annual tax return as an independent contractor. If you will owe more than $1,000 at the end of the year, you will also need to pay quarterly estimated taxes. If you’re debating between filing your taxes as an independent contractor or hiring a tax professional, consider your business income and expenses. If you Suspense Account have a straightforward tax situation with few deductions, then it will probably be less expensive to use tax filing software yourself.