When you’re a 1099 contractor, you have decide how to pay your taxes. The IRS expects you to pre-pay (or pay-as-you-go). Generally you’ll be expected to pay every 3 months. In PA, you have federal, state, local, and possibly a city tax.
How do I keep track of my payments?
I came up with a spreadsheet (XLS | CSV | PDF) for my clients that shows the dates that the quarterlies have to be paid, and who to pay them to. Generally, if you have a 1099, you didn’t have any taxes withheld. When you make that income, it’s very important to take 20-25% of that income and put it in a separate account that you don’t touch, so you can pay it to taxes.
What if I need the money for bills?
I’ve had clients tell me, “I had to live off that money.” That may be true, but at the end of the year, you still have to pay those taxes. If it ends up being over $1,000, you may get a 10% penalty on top of that. If you don’t pay it at all, IRS will come after you with penalties, failure to file, and interest. All of those things will add up to more than what you originally owed in taxes.
People who are still paying back the IRS because they didn’t pay their taxes will tell you – it can take years, and years, and years.