Assuming you mean that you are paying to contractor - not employee - there will be self-employment taxes 15.3% of the net income (after deducting all related expenses) and additional income taxes based on the total income, filing status, dependents and other deduction available to the particular person.
If you are paying to the EMPLOYEE - you are required to withheld FICA taxes and pay employer's portion of FICA taxes and FUTA taxes. Income taxes should be withheld based on employee's filing W4 form.
Please let me know if any clarification needed.
You are contradicted yourself - "paying under the table" doesn't have any tax attached...
If you are paying wages to the employee $360/week and the employee filled W4 form as single with two allowances - the paycheck stub would look as
Weekly Gross Pay - $360.00 Federal Withholding - $19.56 Social Security - $22.32 Medicare - $5.22 Arizona - $1.96 Net Pay - $310.94
Arizona income tax withholding is a percentage of the amount of federal income tax withheld. The employee completes Arizona Form A-4, Employee's Arizona Withholding Percentage Election, to elect an Arizona withholding percentage. I assumed 10%.
If you are paying $500 for service - this is your expense - not revenue. If this service is for your business - you will deduct the total expense amount on your tax return, if this is a personal service - in general it is not deductible but may be deductible in some circumstances (for instance, child care expenses, medical expenses, etc).
Now, if you hire your friend as a contractor - he will be responsible for all taxes and you will not withheld any taxes.
If you hire your friend as an employee and pay $500 wages - the withholding would depend on how the employee filled W4 form. Assuming it was filed as single with two allowances and 10% Arizona withholding - the paycheck stub would look as
Weekly Gross Pay - $500.00 Federal Withholding - $40.56 Social Security - $31.00 Medicare - $7.25 Arizona - $4.06 Net Pay - $417.13
Besides above as an employer you will be liable for:
Social Security (employer' portion) - $31.00 Medicare (employer' portion) - $7.25 FUTA and SUTA taxes - 6.2% of taxable wages. The taxable wage base is the first $7000 - if this is the only payment - $31.00
Thank you for clarification. Thus, assuming that $500 your net self-employment income - you will be responsible for following taxes:
Total - ~$170
Your net after-tax income will be ~$330.