APA's Top Payroll Questions & Answers for 2020 - 3

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APA's Top Payroll Questions & Answers for 2020

Employee turned consultant

After my longtime employer terminated my employment, I became
a consultant specializing in systems analysis, selection, build and
configuration. During my many years in payroll I never had to deal
with 1099 forms. Now that I've been getting Forms 1099, I've gotten
overwhelmed and had to pay a large amount of federal income taxes
for 2020. I have no idea of how to estimate taxes. Is it possible to have
taxes withheld when you are working as in independent contractor or is
this only for employees receiving a Form W-2?

A.

A company does not get involved with tax withholding for an
independent contractor unless backup withholding is involved. That
would happen only because the contractor fails to furnish a valid Form
W‐9, the contractor isn't eligible for exemption from backup withholding,
or the company is notified by the IRS that backup withholding is
required (see The Payroll Source®, §6.5).
As an independent contractor, you pay quarterly estimated tax
to the IRS, and depending on the state in which you work, will also
be responsible for paying estimated state/local taxes. Independent
contractors are also responsible for paying both the employee portion
of social security and Medicare tax, as well as the employer portion.
Note that you must remit estimated tax at least once quarterly, but you
may do so more often. The IRS website has a help page with tax tips
for the self-employed.
I suggest you start by going to a CPA who can help you with
understanding your past tax situation and of independent contractors in
general whose income is reported to the IRS on a Form 1099.
A tax professional will also help you to understand which expenses
are deductible and those that are not. You may not necessarily need
a CPA for future years but it would be advisable to consult one, at
least until you are comfortable with how to report and pay your taxes.
Remember that as a consultant, you may find you have work in your
home town, in other parts of your state, out of state, and possibly out of
the country.

3

The Employer-Employee Relationship

Q.



https://bookshelf.americanpayroll.org/payroll_source/ https://www.irs.gov/newsroom/six-tax-tips-for-the-self-employed

APA's Top Payroll Questions & Answers for 2020

Table of Contents for the Digital Edition of APA's Top Payroll Questions & Answers for 2020

Table of Contents
APA's Top Payroll Questions & Answers for 2020 - Intro
APA's Top Payroll Questions & Answers for 2020 - Cover1
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APA's Top Payroll Questions & Answers for 2020 - Table of Contents
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