Independent contractor tax question?

Question

Do independent contractors pay more in taxes than employees? I know the taxes aren’t taken out of the checks like they normally are for employees, but I’m wondering if the actual dollar amount paid by the contractor would be more. I guess another way to ask is, do the employers pay anything towards taxes for the employee? I’m not sure if it make a difference, but I live in the US.

Answer 1

The employers don't pay anything toward taxes for the employee, so the contractor pays both the employer and the employee halves of social security and medicare.  Income tax is the same rate either way, although deductions and reporting are handled differently

Answer 2

The most common thing is for the pay to look the same when it really isn't.

Someone making $50,000 salary probably costs their employer $75,000 after you take into account the employer's share of SS/MC, unemployment taxes, health insurance, sick leave, vacation time, etc.

An independent contractor doing similar work will often get offered the equivalent of, say, $60,000 per year.  It sounds like it's more money, but it isn't.  If they only work 11 months, the only get paid $55,000.  They must pay 15.3% of the 55,000 as SE tax (as opposed to 7.65% of the salary).  They must provide their own health care etc.

Answer 3

as an ind contractor--you pay both ss payroll taxes

all other taxes are te same.

when you give your rate to the boss add the ss tax plus health ins.

Answer 4

Independent contractors (non-employees) pay more tax than employees...but they get to write off expenses whereas employees do not.

The federal gov't taxes your income, as you are probably well aware.  This is rectified when you file your 1040 at the end of the year.  In addition to this taxation, most states and some local governments also tax income.  The tax rate for all of these is the same whether you are an employee or contractor.  However, as a contractor, you can write off expenses you incur to obtain your income.  In may cases, the mileage you drive, tools you purchase, whatever, can be written off.  I can't even begin to explain here what would qualify, but just keep in mind that there may be some things you can write off as a contractor.  Whatever you write off comes off of your income before taxes are calculated.  This is true for fed, state, and local.

In addition to these taxes, you have what is knows as FICA tax.  FICA is Social Security (6.2%) and Medicare (1.45%).  It is also called Payroll Tax when you are an employee and Self-Employment tax when you are a contractor.  As an employee, you have 7.65% (6.2+1.45) withheld from your pay by your employer for FICA and handed over to the gov't.  In addition, your employer matches that 7.65% with their own money and hands over to the gov't on your behalf.  If you earn $10,000, you have $765 taken from youy pay by your employer who adds $765 of their own money and then hands the entire $1530 over to the gov't on your behalf.

When you are self-employed (contractor) you are responsible for "both halves" of FICA.  If your NET PROFIT (earnings minus expenses) are $10,000, then you need to fork over the whole $1,530 to the gov't.  This is figured out on Schedule SE and is added to your normal tax liability on your 1040.

The only two good things are:

1) you are only taxed on your NET PROFIT, so for every dollar of expense you write off, you save 15.3 cents in FICA

2) the 1/2 that you pay for FICA that normally would be paid by your employer is deducted (technically "adjusted") from your income when figuring your federal INCOME tax...so in the above case where you netted $10,000 and paid $1,530 in FICA tax, you would write off $765 from your gross income before figuring your adjusted gross income (AGI) on the last line of your 1040 front page.  It saves you federal income tax, but it does not lower your FICA tax which is calculated from the net profit of your business, not your AGI.

Make sense?