- Taxes withheld by employer: Employers are responsible for withholding income tax, Social Security tax (12.4% on up to $160,200 in 2024), and Medicare tax (2.9%) from employee wages. They also pay matching employer portions of these taxes.
- Lower reporting burden: Employees receive W-2 forms from their employers, simplifying their tax filing needs.
- Benefits and deductions: Employees are often eligible for employer-provided benefits like health insurance and retirement plans, which can be tax-deductible. Additionally, certain employee deductions like unreimbursed business expenses may be available.
- Limited control over taxes: Employees have limited control over their tax contributions as taxes are automatically withheld by the employer.
- Self-employed taxes: Contractors are responsible for paying both the employee and employer portions of Social Security and Medicare taxes (combined 15.3%) on their net earnings. They are also responsible for paying income tax on their earnings based on their tax bracket.
- Higher reporting burden: Contractors are responsible for keeping records of their income and expenses and filing their own tax returns using Schedule C or Form 1040.
- More flexibility in deductions: Contractors can deduct a wider range of business expenses than employees, potentially lowering their taxable income.
- Greater control over taxes: Contractors have more control over their tax contributions as they are responsible for making estimated payments or withholding enough throughout the year to avoid underpayment penalties.
Additional Considerations:
- Misclassifying employees as contractors: Misclassifying an employee as a contractor can be costly for businesses, as they may be liable for unpaid taxes and penalties.
- State and local taxes: Both employees and contractors may be subject to state and local income taxes and payroll taxes.
- Professional advice: Consulting with a tax professional can help both employees and contractors understand their specific tax obligations and optimize their tax strategies.#BookkeepingBasics #QuickBooksPro #PayrollSolutions #USTaxTips#SmallBusinessFinance #AccountingAdvice #TaxFilingExpert#FinancialManagement #PayrollCompliance #BusinessTaxStrategyCheck out my Fiverr gig for top-notch services at https://www.fiverr.com/talhaarshad97
