As an independent contractor, you have to file a tax return any time your net self-employment earnings top $400. You pay Social Security and Medicare taxes any time you make a higher amount, even if you owe zero income tax. To figure out if you need to pay income tax as well, include your independent earnings with other taxable income on your 1040.
Income Tax Trigger
You don't owe income tax if your income is less than your standard deduction plus your personal exemption. As of 2012, a married couple under 65 doesn't have to file if their net income is less than $19,500 together; for a single filer, it's $9,750. That refers to all your taxable income, not just what you earn working for yourself. Some states use smaller exemptions and standard deductions than the federal government, so you might have to file at the state level even if your federal tax is zero.
Self-Employment (SE) Tax makes up for not having an employer to withhold Social Security and Medicare from your paycheck. Any year your net earnings -- your independent-contractor income, less your business expenses -- top $400, you have to pay SE Tax, which is 13.3 percent as of 2012. That requires filing Schedule SE and Schedule C for your business income as well as a 1040. If you do have income tax to pay, you get to deduct half your SE Tax payment from the income you report on your 1040.
Even if you don't have to pay taxes, there are times you should file anyway. If you or your spouse paid in any withholding, or you filed estimated tax payments, you have to file a return to get a refund. If you qualify for the Earned Income Tax Credit or any other tax credit that pays back more than you put in, you can't claim it without filing. You can wait up to three years to file -- after that, you lose your refund.
When you claim someone as a dependent, she can't take a personal exemption. If she's a single filer working as an independent contractor, the 2012 cutoff for paying income tax is earned income totaling less than $5,950 (which is the the standard deduction). If she has unearned income as well -- interest or dividend payments, for instance -- you have to follow the formula in IRS publication 929 to determine if she has to pay.
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- "If You Make Less Than $10,000 Per Year, Do You Have to File an Income Tax Return?"
- "Which Form to Use to File Federal Taxes for Self Employment Income Under $5,000"
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- "If You Made Less Than $25,000 in One Year, Do You Have to File Taxes?"
- Can We File Jointly If I Have a W-2 & He Has a 1099?