Yes - most 1099 contractors are required to pay “estimated” taxes, every 3 months. It’s not as scary as it sounds, and Keeper is here to help.
Who has to pay estimated taxes?
Most independent contractors are required to pay estimated taxes. There are two exceptions:
- Exception #1: You earn less than $12,000 per year. If times are tough or if you’re a student earning a bit on the side, you get a break. Note: the limit goes up to $24,000 if you file taxes jointly with a spouse.
- Exception #2: Most of your income is W2. The rule of thumb is that if you make over 75% of your income from a W2 job (where taxes are withheld from your paycheck), then you don’t need to file estimated taxes. The cutoff is making less than $3,000 from contracting work, or about $58 per week.
What happens if I don’t do it?
If you wait until the end of the year to file taxes, you’ll have to pay a penalty. It’s not huge, but it’s not nothing.
In 2018, it was around 5% of your total tax payment. Breaking it down, that’s about $150 for every $10,000 earned as a 1099 contractor (assuming a standard 30% effective tax rate).
How do I file estimated taxes?
As long as you’re tracking your income and tax write offs, it’s actually quite simple! You’ll just make a payment online. The formula is essentially your income in the past three months, subtract your tax write offs, and multiply by your effective tax rate (approx. 30%).
In 2019, estimated taxes are due on the following dates:
- April 15th
- June 17
- September 16
- January 15 (of 2020)
Of course, Keeper can handle estimated taxes for you. Starting on June 17th, we'll be doing our first set of estimated tax filings on behalf of our members, for free. If you’re interested in participating, please let your bookkeeper know.