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Tax implications for being paid on a 1099 (All Inclusive) basis

Posted on 2017-07-15
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Last Modified: 2017-07-19
What are the tax implications for being paid on a 1099 (All Inclusive) basis?

Does this mean that I as the employee will have to pay both my share as well as the employer's share of the social security tax?

Are there any other additional or higher taxes that have to be paid by me while being paid on a 1099 basis as opposed to a W2 basis?
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Question by:Knowledgeable
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8 Comments
 
LVL 97

Expert Comment

by:John Hurst
ID: 42217478
If you are self-employed, you have to pay both shares (employer and employee). I have to do that myself here as well.
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LVL 8

Expert Comment

by:fred hakim
ID: 42217483
You pay all the taxes.  Including the fix a and social security.  Note if it's over a certain amount per quarter you need to make those quietly payments as you go.
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LVL 8

Expert Comment

by:fred hakim
ID: 42217484
That should be FICA not fix.  Sorry, fat fingers, skinny phone that thinks it's smarter than me.
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LVL 84

Expert Comment

by:Dave Baldwin
ID: 42217518
It's all on you.  But then, so are all the deductions for related business expenses.  I have a tax person that has been taking care of all that for me for over 20 years.
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LVL 97

Expert Comment

by:John Hurst
ID: 42217537
Where I am, the person pays the personal taxes, not the business. The total salary the business pays is, of course, fully deductible.
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Author Comment

by:Knowledgeable
ID: 42217692
Can anyone provide me with a complete list of all of the taxes I will be paying on a 1099 (All Inclusive) basis including how much each tax is (percentage wise)?
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LVL 84

Expert Comment

by:Dave Baldwin
ID: 42217723
No.  We would have to know all of your financial details to do that.  You don't pay taxes directly on a 1099.  If you are filing as a business, that starts as business income and business expenses are deducted.  Then what ever remains is added to the other income you have on your state and federal tax forms.
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LVL 11

Accepted Solution

by:
Colleen Kayter earned 2000 total points
ID: 42217731
If your "employer" says they will pay you "on a 1099," that means you're an independent contractor and they are your client, not your employer. According to the Dept of Labor, that means they cannot tell you when (timeclock, scheduled hours), where (location), or how (step-by-step procedures) to do the work you perform for them.

You are self-employed, both employer and employee. As Dave Baldwin mentioned, you do get to deduct expenses. e.g, if you use an area of your home exclusively for work, you can deduct a portion of your rent/mortgage and utilities. The taxes you pay are based on your net (after expenses have been deducted) income.

The IRS has very detailed instructions about calculating your taxes, but this WikiHow page gives you the nutshell version. http://www.wikihow.com/Calculate-Self-Employment-Tax-in-the-U.S.

This webpage can also answer a lot of your questions: https://www.irs.gov/individuals/self-employed

The only set amounts are employee deductions (if you are an employee):

Social Security: 6.2% of < $127,200 income, no additional for amts over that.
Medicare (FICA): 1.45% of < $200,000 income, 0.9% for amts over $200K, no employer match

So, that is 7.65% for the employee (you) + 7.65% for the employer (you) = 15.3% of your net (after expenses) income
up to $127,200. If you're making more, hire an accountant.

That does not include your federal or state income tax obligation which is based on your estimated annual income.

ADP provides quick references of payroll taxes for every state. Remember you are both employee and employer, so where the item states "employer/employee," double that amount.

https://www.adp.com/tools-and-resources/compliance-connection/state-taxes/2017-fast-wage-and-tax-facts.aspx
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