Paying Service Providers

There are two main ways to pay service providers in the US: as employees and as independent contractors.

The employees receive wages subject to payroll taxes.  Employer’s expense on top of the wages is roughly 8% and employee’s share of payroll taxes is 7.65% on the first $147,000 (for 2022, adjusted for inflation) and 1.45% each thereafter.  The federal and state income tax withholdings are also made from the payment.  Companies usually offer various benefits such as health insurance and pension plans.  The tax is paid on the gross wages without any additional deductions.  If there are business-related expenses made by an employee on behalf of the company, such expenses are reimbursed separately.  The popular ones are auto expenses, home office, travel, and meals and entertainment.
The payments to the independent contractors are made without any withholdings or deductions by the payors.  The company does Read More

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