I have a guy in Florida working for my construction company as a subcontractor, and he’s hesitant to sign on as a 1099 worker because of the taxes.
I want to give him a rough idea of what to save up so he can pay his taxes at the end of the year. He also has a W2 job where he makes about $80k annually. What percentage should he expect to pay on his 1099 income?
Thanks for any help!
> doesn’t want to sign because of the taxes
In that case, you can withhold a flat 24% and send it to the IRS on his behalf, and let him figure it out when he files. It might not be fun for him, though.
> I am trying to let him know how much…
That’s honestly not your job.
This guy is already letting you know that he’s going to be difficult to work with. He could be a big headache for you.
@Jace
Check the instructions for Form 1099-NEC. There should be guidance on withholding for contractors who don’t verify their SSN. Just follow that.
Corey said:
@Jace
Check the instructions for Form 1099-NEC. There should be guidance on withholding for contractors who don’t verify their SSN. Just follow that.
I’d rather give him a solid estimate so he feels more comfortable signing. I know withholding is an option, but he’s a good guy, and I don’t want him to have IRS trouble down the road.
@Jace
Yeah, I get it. He’s been a great worker for years but got in trouble with the IRS before and wants to avoid any issues now. Is there no way I can withhold the 24% without making it too complicated for him?
@Chen
You only need to withhold if he doesn’t fill out the W9. You could withhold and file the 1099 without his SSN, which is a bit of a hassle for you, and the IRS would eventually match the payments.
Or if he provides the W9, you don’t have to withhold. If he has business deductions, he might even be able to get a refund if he has too much withheld.
He should plan on setting aside about 32% of his profit for taxes.
Brett said:
He should plan on setting aside about 32% of his profit for taxes.
Thanks. Just curious… the IRS says self-employment tax is about 15%. There’s no state income tax in Florida, so where’s the rest coming from? Is it just federal tax?
@Chen
Yep, it’s federal tax.
Self-employment tax covers social security and Medicare, like a W2 employee pays. But this is separate from federal income tax.
@Chen
Yeah, it includes federal income tax and self-employment tax. SE tax is like the social security and Medicare taxes on W2s. He’d also owe federal income tax, around 22%, which might lower to around 17.6% due to deductions. Self-employment tax would be around 14.1%.
Chen said:
@Brett
Got it. So 30% is basically federal income tax plus SE tax. Thanks for the clear breakdown.
Exactly. The 32% is the SE and income tax rates combined.
Chen said:
@Brett
Got it. So 30% is basically federal income tax plus SE tax. Thanks for the clear breakdown.
Exactly. The 32% is the SE and income tax rates combined.
Perfect, thanks a lot for the info!
15.3% is for self-employment taxes, plus income taxes depending on his other income, filing status, etc. State taxes would also matter if they applied.
Giving tax advice without knowing his full situation is tricky unless you’re a tax pro.