Contractor Quarterly Taxes
Who must make quarterly payments?
Contracted Driver and Owner-operators, because they are self-employed (and don’t typically meet one of the safe harbor exceptions), are required by law to pay estimated taxes every quarter.
The IRS requires these payments, regardless of whether drivers independently contract for trucking companies or work directly for themselves. Since taxes aren't withheld from compensation received from brokers or trucking companies, owner-operators (and all self-employed people) should submit estimated income tax payments to the IRS each quarter.
The IRS requires these payments, regardless of whether drivers independently contract for trucking companies or work directly for themselves. Since taxes aren't withheld from compensation received from brokers or trucking companies, owner-operators (and all self-employed people) should submit estimated income tax payments to the IRS each quarter.
How does a driver know if they are a company driver or contractor?
Every driver should have been informed when they signed on with their company as to whether they are a contractor or a company driver. If a switch was made during the time the driver worked for a company then they should have been informed and filled out new paperwork. If a driver has filled out and signed a w-9 form upon being hired, then they are classed as a contractor.
Can contractors pay Annually?
They can, but it is not a good idea. The IRS has a nice little rule that if a contractor fails to make a payment during a given quarter, heavy penalties will be added to their annual taxes.
How do I calculate my quarterly payment?
1) Calculate net pay
- Net pay is the amount a contractor receives personally after all their business deductions.
- All the settlements in the quarter needed to be added up. If a settlement is split over the end of the quarter, the contractor needs to decide whether they are going to go forward or back with that settlement and then keep record of their choice for future quarters.
- If a driver works for multiple companies then they will need to combine the net from those settlements.
- Tax deductible purchases not included within the settlements need to be deducted from the net calculated from the settlement.
- Net pay is the amount a contractor receives personally after all their business deductions.
- All the settlements in the quarter needed to be added up. If a settlement is split over the end of the quarter, the contractor needs to decide whether they are going to go forward or back with that settlement and then keep record of their choice for future quarters.
- If a driver works for multiple companies then they will need to combine the net from those settlements.
- Tax deductible purchases not included within the settlements need to be deducted from the net calculated from the settlement.
Note: It may help a contractor to keep a spreadsheet to record their weekly net pay and tax deductible purchases to make this easier to total out and calculate.
2) Calculate payment amount:
Calculating American taxes are never easy. Here's how you calculate your quarterly payment. Take a quick look at the chart below. At first glance it would seem to the average person that each person fits into one of the following categories. Wrong!
Calculating American taxes are never easy. Here's how you calculate your quarterly payment. Take a quick look at the chart below. At first glance it would seem to the average person that each person fits into one of the following categories. Wrong!
Basically, from a persons net earnings. The first portion of the earnings - "$0 to $9075" is taxed at a rate of 10% (or multiplied by .10).
If the total amount of net earnings is over $9075 but below $36,900 the remaining balance is taxed at a rate of 15% (or multiplied by .15).
If the total net earnings is in the third category or beyond. The first $9,075 is taxed at 10%, the next $27,825 (this is the difference in the tax bracket) at 15% and the remaining balance at 20%. The same follows for each tax bracket beyond this.
The good news is, is that drivers typically fall into the second or third category after their expenses are deducted. I would recommend putting together a spreadsheet for it.
Lets do an example here and you will see why.
If the total amount of net earnings is over $9075 but below $36,900 the remaining balance is taxed at a rate of 15% (or multiplied by .15).
If the total net earnings is in the third category or beyond. The first $9,075 is taxed at 10%, the next $27,825 (this is the difference in the tax bracket) at 15% and the remaining balance at 20%. The same follows for each tax bracket beyond this.
The good news is, is that drivers typically fall into the second or third category after their expenses are deducted. I would recommend putting together a spreadsheet for it.
Lets do an example here and you will see why.
Example 1:
Annual Pay: $20,000 (it's a nice divisible number)
Filing Status: Single
1 Quarter: $5,000 net earnings
$5,000 x .10 = $500
2 Quarter: $5,000 net earnings
Total net earnings: $10,000
1st tax bracket
$9,075 x .10 = $907.50
2nd tax bracket
$10,000 - $9,075 = $925
$925 x .15 = $138.75
Total Taxes: $907.50 + $138.75 = $1,046.25
Taxes to be paid in: $1,046.25 - $500 = $546.25
3 Quarter: $5,000 net earnings
Total net earnings: $15,000
1st tax bracket
$9,075 x .10 = $907.50
2nd tax bracket
$15,000 - $9,075 = $5,925
$5,925 x .15 = $888.75
Total Taxes: $907.50 + $888.75 = $1,796.25
Taxes paid: $500 + $546.25 = $1,046.25
Taxes to be paid in: $1,796.25 - $1,046.25 = $750
4 Quarter: $5,000 net earnings
Total net earnings: $20,000
1st tax bracket
$9,075 x .10 = 907.50
2nd tax bracket
$20,000 - $9,075 = $10,925
$10,925 X .15 = $1,638.75
Total Taxes: 907.50 + 1638.75 = 2546.25
Taxes paid: 750 + 1046.25 = 1796.25
Taxes to be paid in: 2546.25 - 1796.25 = $750
3) Fill out Form 1040-ES
AKA - Estimated tax for individuals
When do it have to make my quarterly payments?
Quarter Dates
January 1 - March 31 April 1 - May30 June 1 - August 31 September 1 - December 31 |
Payment Dates
April 15 June 16 September 15 January 15 |
Please Note: This is a different set up of quarters than what businesses and most government agencies use so be very careful.
Where and how do I send my payment?
Payments can be done online, over the phone or by a mailed in check or money order. There is more information about paying in the instructions on form 1040-ES.