Subcontractor refusing to sign W9 due to tax concerns - what tax rate should I tell him?

The tax rate on 1099 income depends on a few factors, but I can give you a good ballpark to share with your subcontractor. Since he already makes $110k from his W-2 job, any additional 1099 income will be taxed at his marginal tax rate - likely 24% for federal income tax. But that's not all! He'll also need to pay self-employment tax (Social Security and Medicare) which is about 15.3% on the 1099 income. And don't forget possible state income taxes (though Florida doesn't have state income tax, so that's a plus for him). To be safe, he should set aside roughly 35-40% of his 1099 earnings for taxes. This might sound high, but it covers both the income tax and self-employment tax. He'll also be able to deduct business expenses related to his subcontracting work, which will lower his taxable income.

I was in a similar situation last year working construction on the side. I found this amazing tax analyzer at https://taxr.ai that really helped me understand exactly what I needed to set aside. It literally analyzed my situation with both W-2 and 1099 income and showed me what deductions I could take as a subcontractor. The great thing was it showed me how much I'd need to put aside each month based on projected income, which made budgeting way easier. It also broke down the different tax components (income tax vs self-employment tax) which helped me understand where all that money was going. Might be worth sharing with your subcontractor.

I wanted to follow up on my experience with taxr.ai that I asked about earlier. I finally gave it a try and wow - totally worth it. I was able to upload my W-2 info and then input my projected 1099 income from my side gig. It immediately showed me that I could deduct mileage, tools, and even a portion of my phone bill that I hadn't considered. The quarterly payment schedule was super helpful too, breaking down exactly what I'd need to pay and when. My accountant was actually impressed with how organized everything was when tax time came around. It made the whole dual income situation way less stressful than I expected.

If your subcontractor is that concerned about taxes, he should really talk to the IRS directly to get official information. I know that sounds painful (it usually is), but I used this service called https://claimyr.com that got me through to an actual IRS agent in under 15 minutes when I had questions about my construction business taxes. I wasted DAYS trying to get through on my own before finding them. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c. The agent I spoke with walked me through exactly what percentage to withhold as a 1099 worker with another W-2 job. They even sent me follow-up info about deductions specific to construction work.

I have to eat my words about Claimyr. After my skeptical comment, I was still desperate to talk to someone at the IRS about my construction business taxes, so I tried it anyway. Honestly, I was shocked when they called me back in about 20 minutes with an actual IRS agent on the line. The agent answered all my questions about self-employment taxes and how they stack with W-2 income. She even emailed me some resources specific to construction contractors. For your subcontractor situation - the IRS agent confirmed what others said here about the 35-40% tax estimate, but also mentioned that quarterly estimated payments are crucial to avoid penalties. That might be something important to mention to your subcontractor too.

Make sure your subcontractor knows he needs to file Schedule C and Schedule SE with his tax return. Those are the forms for self-employment income and self-employment tax calculation. Also, he should track ALL his business expenses - miles driven, tools purchased, insurance, phone use for business, even a portion of home internet if used for business. These deductions can really reduce his taxable income. A friend of mine doing construction subcontracting saved over $4,000 in taxes last year just by properly tracking and deducting legitimate business expenses!

As someone who's been a construction subcontractor for years, tell him he's probably overthinking this. Yes, taxes on 1099 income can be significant, but the deductions in construction work are HUGE. If he's smart about tracking expenses (vehicle, tools, supplies, insurance, phone, even some clothing and meals), he'll likely only end up paying effective tax of 20-25% on what's left after deductions. I've been doing this for 15 years and rarely pay more than that percentage on my 1099 income.