All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

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Pioneer
Posts: 2
Registered: ‎11-24-2017

Quarterly tax payments after switching to contract?

HI

 

I switched to Contract work mid Aug and didn't realize I needed to start making quarterly tax payments in September.  Now I  just bought the HR premium software to try to figure out how much I owe in Social Security and Medicare Taxes along with federal taxes before Jan and avoid getting a penalty.    But the software isn't updated yet and honestly I am massively confused with mortgage deductions etc I normally have usually received a refund at the end of the year. 

 

1.  Does the Premium software figure out the medicare and social security taxes I owe as well as the federal and state taxes?

2. Is it better than I just wait until January when the software updates and I get tax documents to do the taxes properly or send it a check and cross my fingers?

 

Thanks for any insight

 

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Quarterly tax payments after switching to contract?

Hi FTContractor,

 

 

Welcome to the H&R Block community.

 

You may not have to make estimated tax payments.  Whether or not you need to make payments depends on the overall outcome of your tax return.  If the overall result of your tax return is $1,000 or more in tax due then you will need to make estimated payments.  If you can tell me what your income was as an employee and what you expect to earn as a contractor, as well as if you're married and if you have any dependents I can give you a ballpark refund/amount due figure for 2017.

 

Also, there is are 2 exceptions to the requirement to make estimated payments.  They are that (1) if you did not owe any tax on your most recent tax return (last year's tax return), which means that your withholdings & tax credits covered 100% of your tax liability, then you are not required to make estimated payments this year, and (2) if your withholdings & tax credits for this year will cover 90% or more of your tax liability then you are not required to make estimated payments.

 

Note that it is possible that you will still have to make estimated payments at the state level even if one of the exceptions I just described applies on your federal tax return.  However, most states follow the federal rules.

 

Of course if no exception applies to you and you must make payments I would go to the IRS website and get your payment made immediately with IRS Direct Pay to avoid as much interest as you can.  Chances are you will qualify for an exception though.

 

It's also important to note that if you live in an area that was declared a federal disaster area in 2017 then you have until January 31st, 2018 to file your 2016 tax return if you filed an extension and you also have until January 31st, 2018 to make your September 15th and January 15th estimated payments.  Federal disaster areas include parts of California, Texas, Louisiana, Alabama, Georgia, and all of Florida and Puerto Rico.

 

If you have any other questions I'll be glad to help.

 

Louis,

Senior Tax Advisor (Tampa, FL)

Pioneer
Posts: 2
Registered: ‎11-24-2017

Re: Quarterly tax payments after switching to contract?

[ Edited ]

HI

 

Thanks for the reply.  I am single.  As a employee I made $115,100 and paid $19,137 in fed tax so far and should make another $59.9 K as a contractor by EOY.   Last year I ended up paying $15 K in fed taxes. so I have covered that 100% already.  Does that mean I wouldn't incur any penalty then?

 

 

Thanks

 

 

Highlighted
Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: Quarterly tax payments after switching to contract?

FTContractor,

 

 

Your Medicare & Social Security taxes are:

 

SS Tax  =  12.4%

Medicare Tax  =  3.9%

 

You get a deduction for 1/2 of the social security & Medicare taxes on your Form 1040 and your refundable tax credits & withholdings an reduce these taxes.

 

Federal income tax ends up coming out to somewhere between 10% and 15% of taxable income for most taxpayers who earn under $100,000 depending on how much income you have but the federal income tax can be reduced by deductions, exemptions, credits, and withholdings on your tax return.

 

Yes, the H&R Block software will figure the taxes for you.  You can do an independent contractor return in the deluxe software, but if you have more complicated things like inventories or depreciation of assets you'll be asked to upgrade to premium.