Independent Contractors: Get to Know Your Tax Obligations
For doctors of optometry who practice as independent contractors, tax obligations are a significant factor when determining their daily rate. If you are just starting out in a contractor position, it is crucial to familiarize yourself with the taxes you will be responsible for.
As an independent contractor, you will be responsible for paying self-employment tax (also known as FICA tax) and federal income tax, along with state and municipal taxes.
- FICA tax: FICA tax is made up of withholdings for social security and Medicare, and for an optometrist who is an employee, these withholdings are typically split between the employee and the employer with each party paying 6.2% for social security and 1.45% for Medicare. As an independent contractor, however, you are responsible for both the employer and the employee portions of the withholdings, for a total of 15.3%.
- Federal income taxes: Along with self-employment taxes, you will also be responsible for paying federal income taxes as an independent contractor. To estimate what your federal income tax will be, take your approximate yearly salary, subtract deductions, and then find your tax bracket to determine your tax rate. You may find it helpful to use a free tax calculator online to estimate your tax rate.
- State and municipal taxes: You may also need to pay state and municipal taxes, depending on your location. Because each state and municipality have different requirements, you will need to check with your state tax authority and your municipal tax authority to find their tax requirements.
Because you will not have an employer withholding your taxes for you throughout the year, you will pay your taxes quarterly, rather than annually. The IRS provides Form 1040-ES which contains a worksheet to help you estimate your taxes for the year. As the year proceeds, if you find that you have estimated your earnings too high or too low, you can complete another Form 1040-ES to recalculate your taxes for the following quarter and adjust accordingly.
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