Because there is corp tax also, that's how. Paying income tax is only half of it. In CO where I live every foreign entity must register or you are in violation of CO laws. If they catch you not trying to paying corp tax you can be assessed a penalty. Traderstatus-you are very well versed in this area. Do my comments make sense or are the off? I did quite a bit of reading on this issue before every doing my CO LLC and did it through a CPA which specializes in corps for day traders. You laws may be different in MA, I don't live there.
If the "contractor" is an employee (i.e. he gets W2 from you), you are responsible for one side of SS. But if he really gets W2 from you, he is not a "contractor", but an employee. A true contractor will get a 1099 from you, and he is responsible to pay both sides of SS.
If a contractor, why would he be responsible to pay 15.3% in SS taxes (instead of only 7.65%) if he is not the employer?
That is the tax law. A contractor is actually a sole proprietor. He can find other deduction such as solo 401K to reduce the taxable amount.
Just because for IRS purposes an entity usually passes thru all tax attributes, it does not necessarily follow that the State and Local gov't will not be extracting what they feel is their fair share at the entity level. Most every State has fees due to the Secretary of the State (so if you only registered in say DE, your resident State is missing out on what's "rightfully theirs"). If one chose not to register though I don't suppose there's any way to enforce the requirement... Most States also have an income tax filing requirement and true, most of them are also pass-thru BUT that doesn't mean there's no taxes and fees due by the entity itself. Many States charge based on the number of owners, the amount of capital, the amount of gross sales or net income, or any other method the revenoors dreamt up... including a so-called "minimum tax" just in case an entity slips through based on the normal gotcha's.
Traderstatus, thanks a lot for your info. I have to reconsider and see if I should register in my home state instead of Delaware. I don't see any liability I will have as a trader, and so Delaware doesn't seem to offer me any real benefit.
There is no real liability to trading, if you are trading your own money, unless you trade on margin and blow up your account. When I switched from personal to corp account I had to sign a personal gurantee otherwise they would have never let me trade on margin, for futures trading, since this is all that I trade.
Is an employer who has employees (who get W2) supposed to pay unemployment taxes? What if an employer has independent contractors (who get 1099); is the employer still supposed to pay unemployment taxes? What is the percentage amount anyway?
In all States that I know of YES, W-2 employees result in their employer paying UC tax. Some States might allow a little withholding from the employee to cover some of this UC tax. The rates vary from 1% to 10% for the States and the IRS UC rate is 0.8%. All of these are based on some low level cap on wages of around $7,000 to $25,000 per employee, per year. Employees also generally result in the employer paying Workman's Comp premiums either to an independent insurance company or to the State. Legitimate 1099 independent contractors do not result in any such taxes or employee perks.