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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > Do I have to pay estimated taxes
Expert: WILLIAM D MCCONNAUGHY
Date: 8/14/2008
Subject: Do I have to pay estimated taxes
Question
I am about to start a job as a contract employee. I have never worked as a contract employee, so I have a couple of questions:
If my husband and I got money back last year (2007) when we filed our tax return, do I have to do the whole "estimated taxes payment" quarterly for this new contract job? I am not sure if I am reading correctly, but there is a line on the 1040 ES form that says in the exemptions section:
You do not need to pay estimated taxes if you had no tax liability for the full 12 month tax year and if your total tax was zero and you did not have to file a return. Does this mean that since we did not own taxes last year (again, we got money back), that I don't have to pay estimate taxes? As a note, all of myself and my husband's wages were from permanent jobs, not contract jobs. Don't know if that makes a difference.
Also, if I do have to pay the estimated taxes, when I am filling out the 1040 ES each quarter, for the AGI, am I supposed to include my husband's salary, too, or just mine. It tells me to go back to my AGI for 2007 as a starting point, but that number from my 2007 tax return includes my husband's income. Also, I now have a totally different job with different pay, so I don't think my 2007 AGI is really accurate for 2008. Should I still use it as a reference. I don't want to underpay and then end up getting penalty fees.
Answer
With the changes indicated in the facts you stated, calculating the estimated taxes that may be due is going to be more complicated than usual for you.
I suggest that a proforma tax return be prepared for 2008...taking into account all of the exemptions, credits, deductions, and withheld tax, that you are going to be entitled to when you file.
When all of these factors are calculated with your income for the year, then and only then are you going to know if the tax being withheld is sufficient, or if additional estimated tax payments are going to be required.
And don't forget, contract jobs usually entail out of pocket expenses that can be written off as well. And don't forget, contract jobs can result in the so-called Self-Employment (SE) Tax kicking in as well. This is a tax that often times comes as a major shock to first time self-employed filers because it can easily be greater than your income tax bill!!
You definitely want an experienced professional tax preparer to figure all of this out for you.
Good luck!
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