1099-Misc

Question: I recently worked for a company as a sub-contractor and received a 1099-Misc. What does this form mean?

Answer: Form 1099-Misc is similar to a W-2 that employees receive every year from their employer. The company that you worked for did not withhold taxes from your pay in this case; therefore you are required to pay self-employment taxes.

A copy of the 1099-Misc is also sent to the IRS and goes to your file. You must report this income on a Schedule C when you file your return in April.

You will get a chance to deduct the expenses that you incurred in doing this work as a sub-contractor. Make sure, however, that you keep good records including a mileage log if deducting mileage.

Self-Employment Tax

One of the very common problems for the self-employed is the failure to make estimated tax payments to cover their Self-Employment tax. The rate of these taxes is 15.3% and consists of 12.4% for social security and 2.9% for medicare. The former is applied to the first $94,200 of the combined income, while the latter applies to all income.
The IRS form 1040ES is a worksheet that helps self-employed individuals figure out their taxes.
It is important to notice that the Estimated Tax Payments are paid every quarter and are due on the following dates:

1st Payment: April 15
2nd Payment: June 16
3rd Payment: September 15
4th Payment: January 15

Partial payments, late payments or no payments will be subject to penalties.

Form 1040ES has a payment voucher that is sent in along with each payment so that it is properly applied. As always it is imperative to work with a competent tax representative to walk you through the process.