I’ve recently taken on a second job that pays me income that will be reported on a Form 1099…in other words, no taxes taken out. At some point I need to set aside some money for the taxes on this income. I have searched, but can’t find a source that will give me a ballpark estimate of how much the tax on this additional income will be. Is there a basic formula I should use…I don’t at this point need to have an exact figure, just a rough estimate. I use the free Turbotax version to file my taxes, so that will get me the exact amounts when the time comes.
My accountant advises me to set aside 40%… YMMV.
You’ll owe 15.3% for social security right off the top. If your taxable income for the year is under $34,000 your federal tax rate is 15%… if its between $34k and $82k it’s 25% (see tax brackets). Depending on where you live there’s probably also state tax on top of that…
Our tax situation is work on a 1099, and a new, higher paying a w-2 job as compared to last year.
I am not a tax professional, this is guidance as to what you need to do with the assistance of a qualified tax professional and what they will likely help you determine you need to do and be aware of.
When you do speak to a qualified tax professional, bring your last pay stub (for your w-2 job) and a copy of your last years taxes. Estimate how much you expect to make on the 1099 job.
This will allow the tax person to determine how much tax you paid in last year and what you expect to earn and pay tax wise from the w-2 job this year.
Depending on how much more you’re earning overall this year or less you’re earning in the w-2 job, you may owe quarterly taxes in October and December (and next year in March and June). In my case, the taxes taken out for the w-2 jobs is keeping me in the range of “paid taxes in for the year” (the w-2 job this year pays more than last, and the 1099 not as much as I’d hoped) so I don’t have to pay quarterly taxes.
But as a rough rule of thumb; 40 to 50% and don’t miss those quarterly tax payments, the penalties add up.
You will file Schedule C, and pay FICA tax. That means the 15.3% mentioned above (nitpick: that’s for both social security and medicare), and you get to deduct half of that on your taxes. You may or may not owe underpayment fines if you don’t pay your quarterly taxes.
You can deduct any work expenses pertaining to this job. Contact an accountant for what receipts you should save and how to budget.
The first thing that’s important to know is that you’ll only pay tax on net earnings. That means that you can deduct expenses. Given all the taxes that apply, making sure you catch every single eligible expense is essential - make sure you catch mileage, supplies, eligible meals, deductions for use of home, and depreciation on any previously-owned furniture or equipment used for the business. (I could be more specific, but you didn’t mention the type of job you’re doing).
Tax-wise, you’ve got self-employment tax and regular income tax to contend with. SE tax is 15.3%, but only of 92.35% of your net income up to $107,000. I usually use 15% as a simple estimation. Then you have income tax, which depends on your tax bracket. For most people with other sources of income, I just assume we’re talking about 25% there, but it could be as high as 35%. 15% + 25% gives you the 40% that others have quoted and that’s the ballpark number I give people. (A deduction of part of the SE tax actually makes it more like 37% but there’s a lot of bigger wildcards out there).
But, again, that’s based on net income, not gross pay. If you have $100 in expenses for every $1,000 in gross pay, then you’d expect to pay about $360 in taxes (40% of $900). If your expenses were $500 per $1,000, then you’re only paying about $200 in taxes.
One other thing to watch out for: SE tax is calculated before any itemized deductions, and most tax credits can’t be used to offset it. As a result, you should always plan on paying at least 15% even if you’re sure that you have tons of deductions.
What has been said before is correct. You will need to fill out a Schedule C or depending on expenses involved a schedule C-ez. If you make any real money with your 1099 job you should make quarterly payments. I did VITA ( taxes for the less fortunate) last year and some people that came in got hammered in the tax department. You also will have penalties for underpayment if you do not make quarterlys. The easiest and cheapest way to get yourself a rough guess of the taxes involved would be to redo last years taxes adding in your schedule C income. It is not at all complicated to do a schedule C-EZ. Also as said before keep reciepts of all expenses related to your 1099 job.
If I may ask what kind of job is it? A lot of employers imho screw over employees by making them independant contractors. This gets them off the hook for their half of FICA. I did my friends taxes last year, his wife is a hairstylist and all of her income was on a 1099. I didn’t know that was common practice in the hair and beauty business.
And as I finish posting I see dracoi has made a much better post above mine.
This is just a some-time position assembling the cardboard displayers that stand in movie theater lobbies, and photographing the banners that are on display. It is a supplement to my full-time, tax-paying job. I have no expenses involved with this job. So far this year (since April) I’ve earned $1000, so I’m estimating total earnings for the year of less than $4000. I usually get a refund from my regular job of about $400, so I’m hoping I won’t have to pay much.
What was your Marginal Tax rate (rate on your last dollar earned) last year? Or just tell us what you earned last year/expect to earn this year.
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anson2995** has the 1st and simplest answer,since you have no expenses worth mentioning. Figure on 40%, but if your Marginal Tax Rate is only 15% figure on 30%.
You can deduct your travel expenses to and from the job. And are they providing the camera, or are you?
Not if they fall under “commuting”. This is an area that you’d need to consult a Tax Pro.
Did anyone else think that this was going to be an absolutely fascinating thread comparing the taxes we pay today against those paid 910 years ago?
Well, IANATP, but I am an independent contractor and my clients pay me in 1099 income. I’d say “commuting” is done by an employee, whereas “travel expenses” are deducted by an independent contractor. The IRS would be interested to know if this “employer” is trying to get out of deducting taxes, paying into UI, and so on, by claiming that the OP is not an employee.
I admit that I thought the description of the arrangement as a “job” sounded a little fishy (no reflection on the OP, but rather the “employer”).
Here’s a question for the OP: Is your pay for this arrangement hourly? If so, is it close to what a regular employee would make, or is it higher? True ICs generally get higher rates because the client doesn’t have to provide all the frills that they do for employees, and the IC must cover his/her own SS/FICA taxes, overhead, equipment, transportation, etc.
Granted, this sounds like a part-time gig and not much cash, but it would be more than a little unfair if the OP is being paid employee pay but expected to pay IC taxes out of it.
You make a good point about “Employee vs Independent Contractor”. However, generally, your first stop in a daily route is considered “commuting”. You can have commuting as a 1099 just as well as a W-2 employee. See Rev. Rul. 9023, Rev. Rul. 190 and others:
http://www.allbusiness.com/professional-scientific/accounting-tax/1014008-1.html
Hmm. Interesting. I stand corrected. Good article.
My :dubious: over the OP’s IC/employee status still applies. 
I get paid by the job…basically piecework. I may get paid $35-45 to deliver and assemble a piece, no matter how many hours it takes (and Harry Potter took 5 hours!) or $20 to take photographs of a banner that the theater has hung. I have to provide my own camera or cellphone camera and the transportation…they do add a 4% fuel payment to each workorder. If I can’t do a job for some reason, I can sub-contract it to someone, or I can take a helper along if it’s a huge job…I then pay them out of my payment. Or I can just say, sorry, can’t do this job this week.
One more thing you have to worry about is estimated tax payments.
The federal government (and most states with income tax) don’t really want independent contractors (or employees for that matter) to just figure out what they owe and pay it all on April 15. Rather, unless you meet certain criteria, you must make estimate tax payments four times a year, and if you don’t make appropriate payments, you will be assessed a interest and penalties, which are calculated and reported on IRS form 2210 (known in the business as a ‘2210 penalty’) submitted with your tax return. Estimated taxes are due April 15, June 15, September 15 and January 15, and are either based on your earnings in the period immediately prior to the payment or one of various formulas that you can use to avoid 2210 penalties.
IRS Publication 334 is a tax guide for self-employed people and Publication 505 details payment of estimated taxes. Depending on your tax bracket, and the amount that will be withheld this year from your regular job compared to last year, you might not be required to make any estimated tax payments, but it is something you should be aware of.
As usual, I am not your lawyer or other tax professional, and this is not advice regarding your situation, just a general discussion of the law. Please consult a qualified tax professional if you want advice as how all of this applies to your particular finances. Good luck.