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Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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My son works for a friend (electrician) who just incorporated.

Resolved Question:

My son works for a friend (electrician) who just incorporated. He wants to know if he will have less taxes taken out of his check if he remains a regular employee or if he incorporates for himself and becomes a sub-contractor?
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.
Hello sloner,

If your son starts working for this electrician as a sub-contractor, then no taxes at all would be taken out of his check. However, your son would still be rsponsible for taxes on the money that he earns.

As a sub-contractor, your son would be required to report all of his income to the IRS, but he would also be allowed to deduct any expenses he had in connection with his work. This might include such things as mileage between jobs, tools, use of home office, etc. Once he determined his NET income, he would then owe federal and state income taxes, plus he would owe the full share of social security and medicare taxes, since there would now not be an employer to pick up half of those taxes.

The social security and medicare taxes combined are currently 15.3%. If your son thinks he has enough expenses involved to bring his net income down to less than what is currently being reported, then this might be worthwhile for him to do. Otherwise paying the full cost of the social security and medicare tax may actually end up costing him more than just remaining a regular employee.

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Thank you.
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