Contract Work and Taxes

[SarahC07 0]

I'm looking for information on how much of your paycheck is eaten up by taxes when you're doing contract work. I'm a Texas resident.

I looked around and couldn't seem to find an answer.

Help.

[Lindercles 0]

That all depends on how much income you report. . .

[beowulf 1]

Use the tools at http://www.PayCheckCity.com to figure out how much you should save for taxes.

[jverley 1]

If you are truly an independent contractor, then no taxes are withheld by the company you are working for. You would pay all taxes (including both employer and employee parts of FICA) on your own.

If you are an employee, you will be taxed for the employee FICA (7.65% up to 97K and 1.45% above that). You will also be taxed for Federal Income Tax based upon what you claim on your W-4 or the supplemental rate (25%) depending on the nature of the pay.

John
Arizona Hiking Trails

[SarahC07 0]

Yeah, I've got the fed income tax bracket down .... thanks

I was looking for the extra taxes I'd have to pay because I'm doing contract work...

[beowulf 1]

There are no state taxes. I don't think they have any "Contractor Taxes".

[DrewEckhardt 0]

Quote

If you are truly an independent contractor, then no taxes are withheld by the company you are working for. You would pay all taxes (including both employer and employee parts of FICA) on your own.

If you are an employee, you will be taxed for the employee FICA (7.65% up to 97K and 1.45% above that). You will also be taxed for Federal Income Tax based upon what you claim on your W-4 or the supplemental rate (25%) depending on the nature of the pay.

That's the simple answer.

The more complex answer is that the company you're working for should be engaging You Company which is an LLC or corporation that has opted to be taxed federally as an S-corp.

You Company is wholly owned by you, employes you, and pays you what the IRS considers to be a reasonable salary. If the work requires 2 years of experience but you have 20, you pay yourself what you'd pay some one 2 years of experience. Depending on specifics this could be as little as 50% of what you bill the customer. You Co pays the employers share of FICA + Medicare on Your salary which is in turn subject to FICA, Medicare, and normal income tax rate. You as the owner take the rest of the profits as dividends, which are only subject to your personal income tax.

You Co witholds taxes and has them deposited with the IRS, either directly (Banks must do this, but credit unions aren't Banks) or via electronic fund transfers.

You Co has Your Home Office as its primary place of business, so when it sends You to a customer site it's business travel that can be reimbursed tax free at 48.5 cents a mile instead of commuting to work which is paid for the post-tax dollars.

You Co pays Federal and State Unemployment Taxes The federal rate is like 6.4% of the first $7000 you earn which is insignificant; and you get a credit for something like 5.2% of the state unemployment insurance. If work gets slow You Co can lay You off.