Self Employment Tax Form Quarterly
October 22nd, 2007
If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Question: What is the difference between a sub contractor and an Independent contractor. I am really having a hard time!
I know the Independent contractor pays his taxes quartely and the Sub contractor does not! And that the Ind. pays the fica self employement taxes (medicare and social security) at the rate of 15.3% plus the federal and state taxes too. Is that the same for the Subcontractor as well. And I also heard that since my company is a partnership that if we were to get incorporated that we would be able to be exempt form the self employment tax! (fica) Is this true or not? We got a job offer from a company that wants us to be Independent contractors to work for them. But I am not sure if it is even worth it by the time we pay all of the taxes (or at least put the taxes to the side for quarterly pay) it seems that we would be broke. The job was i the area of around 50,000.00 a year paid every 2 weeks! Thank you
Answer: If you get paid, you are subject to FICA one way or another! If you are self-employed, you pay 15.3% SE tax. If you incorporate, you would get paid a salary or wages. Your wages are subject to 7.65% FICA taxes (Social Security & Medicare). The corporation is also subject to 7.65% FICA taxes. 7.65% + 7.65% = 15.3%. If you want money in your pocket, you have to pay into social security one way or another.
Sub Contractors and Independent Contractors are the same thing as far as the IRS or state government is concerned.
The IRS wants a Sub-Contractor to pay their quarterly tax estimates. They are also subject to the 15.3% self-employment tax.
If it is easier to keep track of, you can pay your estimates on a monthly basis. Just use three estimate coupons and pay every month. My opinion: it is easier for you to pay estimates than to deal with the payroll taxes you are going to have to deal with if you incorporate...
Lets see: Company A pays your Partnership $150,000. You give $50,000 to Partner Y and $50,000 to Partner Z. Assume 25% Federal Tax, 15.3% Self-employment Tax and 5% state tax. $27,350 stays in each of your pockets, $50,000 stays in the Partnership bank account and the Total Taxes Paid is $45,300.
If you incorporate and Company A pays your corporation $150,000 and you give Partner Y & Partner Z $50,000 Salary. Same tax rates, plus 10.8% unemployment tax. You don't have to pay 15.3% self-employment tax, but you still have to pay 7.65% FICA taxes. Money in your pocket is now, $31,175, money in your partners pocket is also $31,175. But the corporation has to pay their 7.65% FICA taxes and the unemployment taxes, so the corporation now only has $41,270 in their bank account. Total Taxes Paid is now $46,380.
It sounds like you should sit down with an accountant or business consultant and go over the tax implications of your business structure as well as the liability issues.
News briefs
Fontana Mayor Mark Nuaimi will give his annual “State of the City” speech on Thursday, Jan. 28. All citizens wishing to hear the speech can attend the free event at 7 p.m. at the Jessie Turner Health and Fitness Center, 15556 Summit Avenue at Fontana Park in the northwestern corner of the city.
Paying Taxes : How to File Taxes If Your Status Is Self-Employed
Posted in 
Tags: