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
Please let me know if any clarification needed.