Independent Contractor Income and Taxes
Whether you are an independent contractor or a statutory employee, the eFile.com tax app makes it easy for you to prepare and e-File your federal and state tax returns. eFile.com offers premium tax support through one of our Taxperts via your own personal support page where you can easily access your support history. Plus, you will safe on your tax preparation fees. Dare to Compare eFile.com with TurboTax® or H&R Block® and you not only find considerable cost savings but also superior tax support. We work so you get to keep more of your hard earned money.
You do not have to worry about which independent contractor tax forms you have to select or how to compete them. Plus you can be assured that all the tax calculations are done correctly - Taxesfaction guaranteed. Prepare and e-File your 2019 Tax Return by April 15, 2020.
Regardless of your W-2 income or your filing status, if you earned a net income of $400 or more from self-employment during the year, then you are required to file a tax return (see the tax return filing requirements). Use our free FILEucator tax tool if you are not sure if you need to or want to file a tax return. Yes, there are reasons when you might want to file a tax return.
Net self-employment income is your income after deducting allowable expenses. As a self-employed taxpayer, you will file your return on Form 1040, and you will generally need to attach Schedule C and Schedule SE to your return. You use Schedule C to report how much income your made or lost in your business, as well as any deductible expenses from your business. Schedule SE is used to calculate the self-employment tax you owe. Also, the Social Security Administration will use your Schedule SE to figure your Social Security benefits. Schedule SE is automatically generated for you. In general, you must file Schedule SE and pay self-employment tax if your net self-employment income is $400 or more.
What Is An Independent Contractor?
You ARE an independent contractor, if you offer your services to people or organizations that pay you, but they have the right to direct and control only the result of the work, not what work will be done or how it will be done. You might be part of the new Gig Economy.
In comparison, you are NOT an independent contractor if you perform services that are coordinated and controlled (e.g. what and how it will be done etc.- even if you have some freedom of action) by another person as an employer. In summary, the employer has the legal right to control the details of how the services are performed.
Examples of independent contractors:
- Babysitters and In-Home Child-Care Providers: They are generally self-employed and subject to self-employment tax. If you are a babysitter and you perform work in your home or in the homes of your clients, and you substantially control the manner in which you do your job, then you are most likely self-employed. A Nanny, au pair, or other child-care provider that lives in their client's home, and that does not control the manner in which they perform their work, may be a household employee.
- Newspaper Delivers or News carriers: You are considered self-employed if you deliver or distribute newspapers or perform related tasks (such as soliciting customers), your pay is based on sales or other output and not on the number of hours you work, and you work under a contract which states that you are not an employee for federal tax purposes. If you meet all these requirements, then you are generally considered self-employed. Even if you are under age 18, you will have to pay into Social Security and Medicare by paying self-employment tax. However, if you are under age 18 and you do not meet all of the above requirements, then you generally do not have to pay self-employment tax.
- Other Examples of Independent Contractors: Doctors, dentists, veterinarians, lawyers, accountants, public notaries, carpenters, electricians, plumbers, mechanics, stonemasons, home remodeler, house cleaners, lawn care providers, software developers, web designers, graphic artists, entertainers, guest speakers, truckers, cab drivers, farm workers, interpreters, project managers, hairstylists, salespeople, freelance writers, etc.
Independent Contractor Income
Independent contractor income is compensation you receive for doing work or providing services as a self-employed individual, not as an employee. If you are self-employed and an independent contractor, your compensation is reported on one of the many 1099 Forms (along with rents, royalties, and other types of income).
Independent Contractor versus Statutory Employee
There are a few special cases where, even though you fit the definition of an independent contractor, you are considered a statutory employee (an employee by statute) for tax purposes. If you are a statutory employee, your employer is not responsible for withholding income taxes from your pay, but Social Security and Medicare taxes will be withheld. To be considered a statutory employee, all 3 of the following statements must be true:
There is a service contract that states or implies that substantially all the services covered by the contract are to be performed personally by you.
You do not have a substantial investment in the tools, equipment, or other property used to perform the services (other than vehicles or transportation facilities).
Your services are performed for the same payer on a continuing basis.
In addition, at least one of the following statements must be true:
You are a driver who distributes beverages (not including milk), meat, vegetable, fruit, or bakery products.
You are a driver who picks up and delivers laundry or dry cleaning.
You are a full-time life insurance sales agent, working primarily for one company.
You work at home with materials or goods which are supplied by your employer and that must be returned to your employer, who also provides specifications for the work that you do.
You are a full-time traveling (or city) salesperson who turns in orders to your employer from wholesalers, retailers, contractors, hotels, restaurants, etc., and the goods you sell are merchandise for resale or supplies for use in the buyer’s business.
You are a volunteer officer of an exempt organization who is paid by reimbursement or an allowance (unless you have to make an accounting of your expenses and pay the organization back the excess amounts).
Independent Contractor and Statutory Employee
You might be both, independent contractor and employee at the same time.
As a statutory employee, you will receive periodic paychecks and for each tax year a W-2 from your employer(s) by January 31 of the following year. If you also have independent contract income that might be reported via one or more 1099 Forms. By April 15 of the subsequent tax year you would prepare, file or e-File your income tax returns to the IRS and States. The eFile.com tax app makes it easy for you to prepare and eFile your income taxes.
Church Employees' Self Employment Tax
If you had $108.28 or more in church employee income, then you must pay self-employment tax. Church employee income is income received from a church or church-controlled organization, not including income paid to ministers or members of religious orders. If you are a minister (or priest, rabbi, etc.), a member of a religious order NOT under a vow of poverty, or a Christian Science practitioner, and you have a conscientious objection to Social Security insurance, you may exempt your net earnings from self-employment tax by filing Form 4361. Under certain circumstances, if you have a conscientious objection to Social Security because of your membership in a religious sect, you may be able to exempt your net income from self-employment tax by filing Form 4029.
If you receive salaries, fees, allowances, or other compensation (housing, food) for doing work as a minister or member of a religious order, you generally have to pay self-employment tax on your income. You may exempt your ministerial income from self-employment tax if you file Form 4361 and you receive an approval from the IRS. Income derived from other sources may still be subject to self-employment tax.
Spouses with a Joint Business Venture
In general, a husband and wife - husband/husband or wife/wife - who jointly own an unincorporated business must file taxes for the business as a partnership. But partnership tax returns and recordkeeping can get very complicated. So the IRS has made an exception. If a husband and wife are the only members of a joint venture (a fancy name for a business owned by two or more people), then they may agree together to elect for their business NOT to be treated as a partnership for federal tax purposes. Instead, it will be a Qualified Joint Venture. Now the couple files a joint tax return and prepares a separate Schedule C for each spouse, taking into account each spouse's share of income and loss derived from the business, as if they were each a sole proprietor. Only couples that are Married Filing Jointly can elect for their business to be a Qualified Joint Venture. Corporations and LLC's do not qualify for this election.
Independent Contractor and Self-Employed Tax Resources
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