Tax Independent Contractors, many massage therapists are independent contractors, also called 1099 contractors as opposed to salaried employees or W9 employees.
The reason there are so many therapists who are independent contractors is that as a contractor,=.
You are allowed to make your own schedule. The flexibility of a massage therapy career allows therapists to design their work schedule around their lifestyle.
When you are a W9 employee, you are usually working fixed shifts and a fixed amount of days per week or month.
For new massage therapists who enter the workforce as contractors right off the bat.
It is important to understand that tax treatment applies differently to you compared to a salaried employee.
When you are a salaried employee, you get a pay stub which shows how much you made and how much your employer took out in taxes.
Your employer later pays these taxes to the government on your behalf.
When you are a 1099 contractor, you receive a pay statement showing how much you made.
You get every single dollar that you made because no taxes are taken out by your employer.
You have to figure out how much you owe in taxes and make the payment to the government on a quarterly basis.
This obviously means that while your paycheck is bigger.
You cannot spend every dollar of it immediately.
You must set aside money which is to pay in taxes later to the government.
And while it is important to set aside and make the right amount of tax payment to avoid any penalties or late fees imposed by the IRS at the end of the year.
Take comfort in knowing that you don’t have to get the amount right exactly to the penny.
What you need to do is first figure out how much you anticipate making for the full year.
Then figure out your tax rate (you can do this by visiting www.irs.gov) and then calculating your anticipated tax liability or the money you will owe to the government at the end of the year when you file your taxes.
If you have a CPA or accountant make sure you get their help in figuring out your anticipated tax bill.
When calculating your anticipated tax bill, make sure you are factoring in all the expenses and deductions.
In other words, let’s say you anticipate earning $70,000 for the year.
You don’t have to pay taxes on the full $70,000 because there are deductions (qualified expenses such as CEs and license renewal fees, for example) that you can offset against your income.
Make sure you take these into account.
Now here’s the thing. Uncle Sam cannot wait all year to get their taxes.
You are required to send in a portion of your tax every quarter at the end of the quarter.
For example, the first quarter ends in March.
You are required to make a partial tax payment right after the end of the quarter and so forth until you make your final payment for the year.
So how do you do this? Simple. Take your anticipated tax bill for the year and divide it in four.
Send one estimated tax payment in every quarter. If your workload changes along the way where you are working either more or less, recalculate your tax liability for the entire year and adjust your quarterly payments accordingly.
It is ok if you overpay the IRS.
MIST – Tax Independent Contractors
In fact, most people do and should to avoid any penalties or fines.
The amount of overpayment you make will send back to you later when you file your end of year tax return.
Salaried employees also typically end up overpaying and then getting a tax refund at the end of the year.
There are exceptions to the quarterly payment rule and Tax Independent Contractors
If you make under a certain amount (you can confirm this amount on www.irs.gov).
You will be allowed to skip quarterly payments and make one lump sum tax payment at the end of the year.
We thought this information is useful to know especially if you are a new massage therapist just entering the workforce.
If you are going to be salaried, the tax stuff will take care of you by your employer.
But if you are going to be an independent contractor like many, you will have to learn the right way to manage and make your tax payments.
We suggest you thoroughly research the matter and talk to other therapists who are independent contractors to learn the right way to manage your taxes.
And finally, being an independent contractor doesn’t only pertain to practising therapists.
As this type of a structure is generally more favourable for the owners of the massage school.