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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > payroll or not?
Expert: Carole Dunton
Date: 7/8/2008
Subject: payroll or not?
Question
I am currently earning approx. $1000/month before taxes at my job (I live/work in Houston, TX). My employer has employed me as a contract worker, saying I probably won't have to pay taxes or at least can choose the taxes I want to pay because I don't earn enough. So instead of waiting to get my money back from the gov't after filing taxes I have the money right away. Now my question is if that's right, or if I would be better of on the normal payroll. Next tax season will be the first time for me to file taxes, I'm married and don't know, with my income, if it will be better to file joint or separate in my situation. I also heard that, if I continue working as a contract worker, I might have to pay "double takes" for me working there and for my employer for having me work there. So please help me figuring that out, weather to leave it as it is or to switch to the normal payroll program. Thanks a lot for your efforts !
~Caroline
Answer
Hi,
You will be required to report your income on Schedule C. If you have expenses to deduct you can reduce the amount on which you pay taxes. But in addition to income tax you will have to pay self employment tax (social security and medicare) on your net self employment income. The rate for self employment tax is 15.3%. Since your employer is not paying half of the social security and medicare you have to pay it all. The actual calculation is net self employment income X .9235 X .153.
It's usually best to file jointly. The Schedule C is attached to your tax return and the numbers from it are reported on your form 1040 along with your other income. You will also attach a Schedule SE where you calculate your self employment tax and report the numbers from it on your 1040 as well.
Generally it is better to be treated as an employee unless you have a lot of expenses to deduct from your self employment income.
Regards,
Carole
Regards,
Carole
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