Taxes on signing bonus for independent contractor

[DCDAWG]

Hey all,

Just got signing bonus check in mail for gig starting July after residency. I am an independent contractor and plan to get a CPA to handle all my taxes. I understand that I need to file quarterly taxes as an IC. Does this mean I need to do this for my signing bonus as well? Consider that I am still being paid as an employee by my residency hospital through June.

Thanks!

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[michaelrack]

Hey all,

Just got signing bonus check in mail for gig starting July after residency. I am an independent contractor and plan to get a CPA to handle all my taxes. I understand that I need to file quarterly taxes as an IC. Does this mean I need to do this for my signing bonus as well? Consider that I am still being paid as an employee by my residency hospital through June.

Thanks!

I believe you would need to do this for the signing a bonus- another option would be to see if you can increase your withholdings from your residency paycheck to to cover the taxes owed on your signing bonus.

 

[freaker]

All that matters is whether your signing bonus is from an employer who is hiring you for contract work (1099) v. a salaried employer (W2). I can't tell from your post which is the case. If your new job is as a contractor, you're going to have to submit quarterly taxes and pay your "fair" share of the social security taxes. W2 employers are required to subtract SSI from your paycheck and pay half of it themselves, hence there is no need for quarterly payments from them as they should be deducing federal and state taxes from your every paycheck.

Makes sense?

Also take note that if your signing bonus comes from a state that hits you with state income taxes that you're going to need to file a state income tax to the state where your signing bonus came from, even if you don't live there, yet.

 

[southerndoc]

A couple things:

1. You'll base your quarterly payments on your prior year's salary. I believe it's 110% if I'm not mistaken. So you'll pay 110% of your PGY-3/4 salary's taxes as your quarterly payments for your first year as an attending. Make sure you save accordingly. Come April 15, you'll owe all that is due.

2. If you don't make quarterly payments, it's not big deal. You just pay interest on any unpaid amount. Currently it's 3%. Make sure you pay by April 15 to avoid the 10% penalty (plus the interest for any unpaid quarterly payments). The interest starts from the date of the quarterly payment is due. So if you miss one payment, you'll pay interest on that one payment from the due date until it's paid off. If you don't pay it by April 15, then you'll pay the interest plus 10% of any unpaid balance.

3. The bonus is taxed in the year it was received. If you received it in December 2013, then you'll pay taxes on it for the 2013 tax year.

4. Get a CPA. After a few years of them doing your taxes, you can probably switch to TurboTax. For the first few years, you'll find out about all kinds of things that software wouldn't make obvious. Itemization, deductions, business expenses, all of these need to be maximized.

 

[The White Coat Investor]

The truth is that you kind of get a free pass for underwithholding the first year, so it doesn't matter much. The technical answer is that your estimated tax payment in September should include the taxes owed on the signing bonus. Unless you get it before June 15, then pay it then. I guess if you get it before April 15, you should pay then.

Be sure you understand the difference between how much you pay in taxes and how much you must withold. They are different numbers.