Dear Liz: My recently graduated child got a job and he will be given a 1099 tax form for his earnings. I know he will have to file his taxes differently and will need to pay both state and federal income taxes, but will he also make payments toward Social Security? Will these months (and maybe years) go toward his lifetime “credits” of paying into Social Security?
Answer: The company is paying your son as an independent contractor rather than as an employee. That means he will need to file his taxes as someone who is self-employed. So yes, he’ll be paying into Social Security — and he’ll be doing so at twice the rate of employees who receive W2s.
Normally, Social Security and Medicare taxes are split between employees and employers. Both pay 7.65% of the employee’s wages, for a total of 15.3%. Self-employed workers must pay both halves.
Your son won’t have taxes withheld from his earnings, so he’ll likely need to make quarterly estimated tax payments to avoid penalties. A tax pro can help him set up these payments and suggest legitimate expenses he can use to reduce his tax bill.