If you are classified as a part-time or full-time employee, your employer is responsible for calculating your tax withholding based on the information you provide on your W-4 form. But if you work as an independent contractor, you are responsible for calculating what you owe in taxes, and for transmitting that money to the IRS on a timely basis. As an independent contractor, you might be required to pay taxes on a quarterly instead of an annual basis, so taking the time to calculate your tax liability is critical.
Create a spreadsheet that lists all of the income you receive as an independent contractor. If you also receive wages from a regular job, record that information separately.
Calculate the amount of your self-employment tax, based on the income you receive from your work as an independent contractor. As an independent contractor, you are responsible for paying both the employer and the employee's side of the Social Security and Medicare tax. The normal rate for the Social Security tax is 6.2 percent for both employer and employee, but for 2011 only the employee rate has been dropped to 4.2 percent. The Medicare tax rate for both employer and employee is 2.9 percent.
Annualize the monthly figures from your independent contractor work by multiplying your average monthly earnings by 12. Use this figure to estimate the taxes you should be paying.
Enter the annualized figures from your independent contractor job into a tax preparation software package to get the amount you are likely to owe at the end of the year. If you expect to owe more than $1,000 to the IRS, you should start making quarterly estimated payments. You can use your tax preparation software to create and print the forms and vouchers you need to submit those payments to the IRS.
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