The gig economy is growing with each year as more companies turn to using casual labor instead of hiring people to work for them as wage earners. Companies absolve themselves of the need to pay employment taxes while benefiting from the labor supplied by a contractor. The responsibility for paying these taxes falls squarely on the shoulders of the contractor which makes extra work they probably never realized they’d be responsible for. While it’s good for a contractor to seek help with tax preparation Concord NC, there are things they should learn about and understand so they don’t have a large tax liability come tax season.
Federal and State Withholding Taxes
The law of the land for income and taxes is: when you earn money, you have to pay taxes on it. There’s no getting around the fact that federal and state governments have the right to take taxes out of your income. The money taken out goes to fund programs of all kinds along with providing you a steady payment during your retirement years. When you’re a contractor, you have to pay these taxes on your own, and preferably on a quarterly basis to the IRS. The state of North Carolina also requires contractors to pay income taxes on a quarterly basis the same as the federal government.
Understanding FICA Taxes
FICA is shorthand for Federal Insurance Contributions Act and covers the deductions that are taken out of a payroll check along with federal withholding taxes. They fund Social Security and Medicare and the When working under the status of hourly or salaried employee, the employer is required to pay half of these taxes while the employee pays the other half. A contractor is required to pay the entire amount of FICA owed on their earnings although they can reduce the amount owed through the use of Schedule C deductions. These taxes, along with the withholding taxes, should be paid through tax payments made four times a year, also known as quarterly taxes.
Paying Estimated Quarterly Taxes
The IRS expects contractors to pay their federal withholding and FICA taxes on a quarterly basis if they think they’re going to owe more than $1,000 in taxes after taking out withholding and refundable credits. You have until the end of each quarter to pay your taxes which gives you the opportunity to pay an accurate amount instead of guessing at what’s owed. You may want to get the help from an expert in tax preparation Concord NC for estimated quarterly taxes if you’re not sure how to handle calculating and sending in the payments.
Paying quarterly taxes is beneficial to you in that you don’t have to risk paying a lump sum on your personal income taxes. You also avoid paying a penalty for not paying your taxes on a quarterly basis and paying it all at once. Estimated taxes are determined by the amount of money you think you’ll earn throughout the year along with estimating the deductions, credits, and taxes you’ll pay.
In the event that you aren’t employed in a given quarter, you don’t have to pay taxes. Of course, you can always pay something even if you don’t earn as the taxes are estimated. This amount gets credited the same and is used to reduce or eliminate your tax liability for the year. Remember: overpaying taxes means you give the government a free loan of your money. Try to keep the amounts you submit as close to actual income as possible.
Doing your own taxes as a contractor can be challenging. Learning how to figure them out can also cut into your valuable time. Working with an expert in tax preparation in Concord NC relieves you of the burden of learning tax law and how to do the math required of you for quarterly taxes, especially if your income fluctuates. You can focus on your life while someone else prepares your taxes on your behalf.