The Self-employed Nurse and Federal Income Tax

Are you planning a new career path as a self-employed nurse (full or part time)? If so, your federal income tax on that income needs to be estimated and paid quarterly. Don’t wait to report your self-employment income at the end of the year.  If you don’t file quarterly, you may be responsible for back taxes and penalties by the end of the year.

As you know, we have a pay-as-you-go tax system in the United States. There are two methods to pay as you go:

1. Withholding method: If you are an employee, your employer withholds income tax from your wages. You file your income tax return annually.
2. Estimated tax method: If you are a self-employed nurse, you estimate your income tax withholding and pay quarterly. This estimated tax payment includes income tax, self-employment tax, and an alternative minimum tax if applicable to you. You also file an annual income tax return.

Good records of the money you make and spend in the business will ensure that you have everything you need to file accurately. The general rule is that you will need to make quarterly estimated tax payments if you expect to owe $1,000 or more when you file your annual return. To figure and pay your estimated tax, use Form 1040-ES (Estimated Tax for Individuals). Check with the IRS because tax rules change.

Schedule C (Profit and Loss from Business) is the annual federal tax form filed by most self-employed nurses. You can use it whether you do well, make little or no profit, or even lose money. You can file the electronic version of Schedule C (form C-EZ) if your situation is not complex and you have expenses less than $5,000, no net losses, and no employees. Schedule C or C-EZ is filed annually as an attachment to your 1040 individual tax return.

Some self-employed nurses need an employer identification number (EIN). It is a federal tax identification number for your business. Your Social Security number is your federal tax identification number for you as an individual. Generally, if you operate your business as a corporation (Inc.) or partnership (LLC), or if you have employees, you will need an EIN. The fastest way to apply for an EIN is online. You will receive your number immediately.

The Web site of the Internal Revenue Service (http://www.IRS.gov) has a wealth of information. The IRS also has a business hotline at (800) 829-4933. The 2013 Tax Calendar contains filing dates and tax related information. Search for publication 1518 on the IRS website. Print it out and refer to it frequently.

Your state may also have income tax requirements. Be sure to check with your state on what they require.

As always, I am here to answer your questions.