Fema Employment

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

Public Comments

1. ABC Construction is hired by the State of Alaska to build a new weigh station. ABC Construction hires DEF Roofing to put on the roof. in this case, the independent contractor is ABC Construction and the subcontractor is DEF Roofing.
2. A general contractor takes a job, like building a house. They hire subcontractors for specific task like roofing. Both are contractors and pay all the taxes both halves of FICA and income tax quarterly. A contractor who works for a company isn't an employee they are self employed. The business owner can't set their hours or tell them how or when to work. So if you are hired say for a roofing company as a contractor you are just given work and you can do it yourself or hire subcontractors. As a roofer you could hire your own crew, provide your own transportation to the jobs. If your company says you have to be at a desk set hours you are an employee, otherwise they would have everyone be contractors so they didn't need to pay unemployment, workers comp, paid vacations, sick leave, or FICA or deal with payroll taxes at all. A contractor owns their own business so takes the gross income and deducts the business expenses on the tax return. For tax purposes a contractor or sub contractor are the same.
3. 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.
4. The previous posts explain well the difference between a contractor and a subcontractor, but it's important to remember that this distinction describes different kinds of employers in the general business world -- and is NOT applied by the IRS to workers. As far as the IRS is concerned, workers are either "employees" (roughly, those who work when and where their employer tells them to) or "independent contractors" (roughly, those who set their own hours and working conditions). Employees have Social Security and other taxes withheld from their wages and independent contractors do not. Independent contractors must pay both halves (the "employer" portion and the "employee" portion) of Social Security & Medicare taxes, using Schedule SE of Form 1040. In order to avoid underpayment penalties, independent contractors need to pay estimated taxes (including income taxes as well as Social Secuirty taxes) quarterly throughout the year. Remember, a contractor or subcontractor (i.e., an employer) may hire employees or it may hire independent contractors -- there is no link that says just because the employer is a contractor or subcontractor that its workers are necessarily independent contractors (instead of employees).