Independent Contractor question
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Anonymous
| Due to some personal circumstances I am going to move from a permanent job with my current employer to become a independent contractor. Its really amazing they are letting me keep my job in the first place so I am happy, but i feel after speaking with them about salary I'm getting screwed. Anyone have any thoughts? Currently make $105K and they are planning on paying me 46.50/hr. But as an independent contractor i know my taxes will go up significantly, so aren't i now making about half take home of what i made before? Just curious if someone understands this better than i do. Thanks! |
Anonymous
| If your job is going to stay exactly the same, the employer can't just switch you to being an independent contractor because they feel like it. There is a legal distinction between an employee and an independent contractor. Google "employee vs. independent contractor" and you will get lots of info. |
Anonymous
| The big difference (aside from benefits like healthcare and 401k match) is that you will now be paying both parts of the SS/medicare taxes - an additional ~7%. Now, you are only paying 15.3% self employment tax on NET PROFIT (rather than 7.65% on gross earnings as an employee), plus you get a deduction for half of the self employment tax you pay, so the impact may not be that great. You can also open an individual 401k and save far more than you could have with an employer's plan since you can make the profit sharing contributions on top of the 17,500 employee contributions. |
Anonymous
| The big difference (aside from benefits like healthcare and 401k match) is that you will now be paying both parts of the SS/medicare taxes - an additional ~7%. Now, you are only paying 15.3% self employment tax on NET PROFIT (rather than 7.65% on gross earnings as an employee), plus you get a deduction for half of the self employment tax you pay, so the impact may not be that great. You can also open an individual 401k and save far more than you could have with an employer's plan since you can make the profit sharing contributions on top of the 17,500 employee contributions. |
Anonymous
| The big difference (aside from benefits like healthcare and 401k match) is that you will now be paying both parts of the SS/medicare taxes - an additional ~7%. Now, you are only paying 15.3% self employment tax on NET PROFIT (rather than 7.65% on gross earnings as an employee), plus you get a deduction for half of the self employment tax you pay, so the impact may not be that great. You can also open an individual 401k and save far more than you could have with an employer's plan since you can make the profit sharing contributions on top of the 17,500 employee contributions. |
Anonymous
| I apologize for the triple post. On my phone and my reception sucks. |
Anonymous
This was my thought exactly. This could well come back and bite your employer with serious tax consequences in the future. |
Anonymous
Seems like the rate should be quite a bit higher to make up for PTO, insurances, and other fringe benefits that you'll no longer have as an IC. |
Anonymous
| It sounds like a win win for your company. They don't have to give you benefits, paid vacation and sick days, they save on employers unemployment insurance. If you look at the big picture OP, you are not getting paid while sick or on vacation so your annual salary will be significantly less based on the hourly rate you are quoted. Not to mention the out of pocket expenses for health benefits. Can you negotiate for something higher? |
Anonymous
| Don't forget OP that as an independent contractor you will need to pay your state and federal taxes on a quarterly basis. |