What Taxes Do Subcontractors Pay

• 18/12/2022

Subcontractors are self-employed individuals or businesses who are hired by companies to perform specific tasks or projects. As independent contractors, subcontractors are responsible for their own business expenses, including taxes. In this article, we will be discussing the different taxes that subcontractors typically pay.

1. Self-Employment Tax

Subcontractors are subject to self-employment tax, which is a federal tax that covers Social Security and Medicare taxes. The current self-employment tax rate is 15.3 percent, which is calculated based on the subcontractor`s net earnings. This tax is often referred to as FICA (Federal Insurance Contributions Act) tax, and it is typically paid quarterly.

2. Income Tax

Subcontractors are also responsible for paying federal and state income taxes on their earnings. Unlike employees, subcontractors do not have taxes automatically deducted from their paychecks. Instead, they must estimate their tax liability and make quarterly payments to the IRS.

3. Sales Tax

In some cases, subcontractors may be required to pay sales tax on their products or services. This depends on the state where the subcontractor operates and the type of work they do. For example, if a subcontractor sells tangible goods, they may be required to collect and remit sales tax to the state.

4. Business Taxes

Subcontractors may also be subject to other business taxes, such as property taxes or business license taxes. These taxes vary depending on the location and type of business.

As you can see, subcontractors are responsible for paying a variety of taxes. It`s important for subcontractors to keep detailed records of their income and expenses, as well as make regular tax payments to avoid penalties and interest charges.

If you`re a subcontractor, it`s a good idea to consult with a tax professional to ensure that you are complying with all tax laws and regulations. By staying on top of your tax obligations, you can avoid surprises come tax season and keep your business running smoothly.