Normal salaried jobs have you fill out a bunch of paperwork that tell your company how much money to set aside for your taxes. You also opt into healthcare and retirement which come out of your paycheck.
When you work independently none of these things happen or exist.
Essentially, you'll get a full check for the work you do untaxed. No healthcare and no retirement.
This means you're on the hook for managing your own taxes.
Example:
Take home from 100k salary (Ignoring healthcare/retirement): ~75k
Take home from 100k independent: 100k
When tax season rolls around, for the first example you may get a refund or you may owe a little. Thats because the entire year you worked, your company was putting some money aside for your taxes based on some paperwork. The IRS already had money that you essentially set aside from them. So they'll give you any extra as a refund or send you a bill if you set aside too little.
In the second example you'll get a bill. A bill for close to 25k. Thats because you haven't paid any taxes at all and you owe the state and federal government.
One other tidbit. You are also required to pay taxes quarterly when you work independently. If you don't you'll also get hit with a fine on top of your bill.
This probably sounds scary and complicated, but here's a pretty good rule of thumb.
For every paycheck you get, set aside 25% for the taxes you'll likely owe. Pay that amount quarterly to the IRS.
Consider hiring an accountant before tax season to help you with taxes. When you work independently you can do a lot with deductions and whatnot that if you don't know about will have you paying more than you need to. This can add up to some massive savings. I've never lost money on paying an accountant.
There's a quarterly estimated tax payment form. This is required if you are going to end up owing over about $1k by the end of the year.
Estimated tax payments are required based on the total amount of tax owed at the end of the year, not based on a particular source of income. Meaning, if the OP has excess tax withheld from previous/concurrent jobs, these quarterly payments might not be necessary.
This could be something that varies by state. The last year I was independent I got fined for not making quarterly payments. I've not done more independent work to know exactly how.
Personally only have experience with paying taxes after a year and not doing the quarterly payments. I was paid $20/hour, worked about 25 hours a week. I figured I could save enough money come next April instead of sending checks every quarter.
Once I filed I had to owe taxes (as expected) but don't remember being charged a fine for not paying quarterly. The job was in 2017. Not sure if the rules have changed though.
Depending on the amount you owed they may require you to make quarterly estimated payments the next year -- regardless of what you expect to make. You can counter that with some other IRS forms though.
In particular there is one you can file that basically says I have no idea how my money will come in and can't possibly pay 1/4 of it in Q1. This can help avoid any future fines where the IRS will penalize you saying you withheld payment till the end of the year.
You mail them a check along with a 1040-ES. They check what you paid vs what you actually owe annually. Because of this you want to estimate on the low end.
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I'll offer some advice.
Normal salaried jobs have you fill out a bunch of paperwork that tell your company how much money to set aside for your taxes. You also opt into healthcare and retirement which come out of your paycheck.
When you work independently none of these things happen or exist.
Essentially, you'll get a full check for the work you do untaxed. No healthcare and no retirement.
This means you're on the hook for managing your own taxes.
Example:
When tax season rolls around, for the first example you may get a refund or you may owe a little. Thats because the entire year you worked, your company was putting some money aside for your taxes based on some paperwork. The IRS already had money that you essentially set aside from them. So they'll give you any extra as a refund or send you a bill if you set aside too little.
In the second example you'll get a bill. A bill for close to 25k. Thats because you haven't paid any taxes at all and you owe the state and federal government.
One other tidbit. You are also required to pay taxes quarterly when you work independently. If you don't you'll also get hit with a fine on top of your bill.
This probably sounds scary and complicated, but here's a pretty good rule of thumb.
For every paycheck you get, set aside 25% for the taxes you'll likely owe. Pay that amount quarterly to the IRS.
Consider hiring an accountant before tax season to help you with taxes. When you work independently you can do a lot with deductions and whatnot that if you don't know about will have you paying more than you need to. This can add up to some massive savings. I've never lost money on paying an accountant.
How would that work, I’m only familiar with yearly exchanges with the IRS.
There's a quarterly estimated tax payment form. This is required if you are going to end up owing over about $1k by the end of the year.
Estimated tax payments are required based on the total amount of tax owed at the end of the year, not based on a particular source of income. Meaning, if the OP has excess tax withheld from previous/concurrent jobs, these quarterly payments might not be necessary.
Honestly, I'm not sure.
This could be something that varies by state. The last year I was independent I got fined for not making quarterly payments. I've not done more independent work to know exactly how.
Personally only have experience with paying taxes after a year and not doing the quarterly payments. I was paid $20/hour, worked about 25 hours a week. I figured I could save enough money come next April instead of sending checks every quarter.
Once I filed I had to owe taxes (as expected) but don't remember being charged a fine for not paying quarterly. The job was in 2017. Not sure if the rules have changed though.
Depending on the amount you owed they may require you to make quarterly estimated payments the next year -- regardless of what you expect to make. You can counter that with some other IRS forms though.
In particular there is one you can file that basically says I have no idea how my money will come in and can't possibly pay 1/4 of it in Q1. This can help avoid any future fines where the IRS will penalize you saying you withheld payment till the end of the year.
You mail them a check along with a 1040-ES. They check what you paid vs what you actually owe annually. Because of this you want to estimate on the low end.