| “Currently I am a W2 employee. I would begin working on 1099 for another company from end of May. This is the first time I would be working as 1099 contractor. Could you please tell me what I need to start doing related to keeping in compliance with tax rules?”------> If you are filing as a sole proprietor and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. However, you do not have to pay estimated tax for the current year if you had no tax liability for the prior year ;you were a U.S. citizen or resident for the whole year;your prior tax year covered a 12 month period. The general rule is you have to pay estimated tax if your withholding doesn't cover 90% of your tax liability. But there are exceptions: No estimates are required if the amount due after subtracting withholding and credits will be less than $1,000. You need to pay in at least enough tax through a combination of withholding and estimated payments to avoid the estimated tax penalty. To avoid the penalty, you will need to pay in "at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller," according to the IRS. In general, no estimates are required if your withholding and credits add up to at least as much as your prior year's tax. As long as the amount on Sch C line 29/31 is $400 or exceeds $400, then you must file Sch C and also as long as the amount on Sch SE line 4 is $400 or exceeds $400, you must pay self employment tax; self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011. The self-employment tax rate for self-employment income earned in calendar year 2011 is 13.3% (10.4% for Social Security and 2.9% for Medicare). The Temporary Payroll Tax Cut Continuation Act of 2011 extended the self-employment tax reduction of 2% for calendar year 2012 so the rates for 2011 remain in effect for 2012. For self-employment income earned in 2010, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).
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