Contractor Tax Rates
April 15th, 2007
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Question: Small business/free lancer taxes at end of year. (Tax rate?)?
So I just started my own freelancing/small business thing a few months ago and I’m making significantly more money then I had thought I’d make so I figure I’m going to have to pay taxes on it at the end of the year since I’ll be making enough to do so. I’m an independent contractor for most of my clients so I’m going to start saving a percentage of my paychecks into another savings account but how much should I save to be safe and have that money to pay my taxes at the end of the year? 10%? 15%? 20%?
I’m estimating $16,000 – $20,000 for the year.
Answer: Depends on how much you're making total. 10-20% would very likely cover your federal income tax unless you really make a lot - without more info on your expected total income and your tax situation, no way to tell. But you'll also pay a little over 14% for self employment tax (for social security and medicare) and depending on where you live, might also have state and/or local income tax. And you shouldn't just put it aside, you are required to make quarterly estimated payments for what you owe - if you don't, you might be penalized at federal, state and local levels.
Note that if you make $400 or more as an independent contractor, even if you don't make enough to owe any income tax you still have to pay the 14+% self employment tax.
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