Because the new, very small company does not offer insurance or a 401K match.

Why do you want to give up 401k and insurance for a salary boost that will just get eaten by private market insurance premiums and IRA contributions?

Op here again. Thanks for the advice, that calculator is useful. The 78 is garunteed and I think if I go through with this, I will have an employment lawyer look over the contract.

I am going to explore having the company hire me, but I imagine that the salary will be less than 78, and there would be no 401k or health insurance. Am I right to assume the that the only benefits would be that they pay more taxes and potential unemployment?

Is that a guaranteed $78k or just what they estimate will be the number of hours you will work for them times a price per hour? Make damn sure you are guaranteed a base amount. And I don't recall but I think I read somewhere that you're supposed to markup your time by 30-50% if you work as an IC to make up for the overhead and insurance a company would otherwise pay for.

I know a company that hires its contractors through other firms. For example, the Company has a contract with the Firm, and the Firm has a contract with an independent contractor ("IC"). IC works full time from the office and on the equipment of the Company, performing the duties of a regular Company's employee for years. However on paper, the IC isn't in any way related to the Company because he/she has a contract with the Firm. IC definitely isn't an employee of the Firm because they only communicate a couple times a month exchanging invoices, but how would that be possible to prove that an IC is an employee of the Company, if they don't share any employment paperwork at all?

I know a company who did this. And it was called insurance fraud.

50%

Get an FEIN from the IRS. Give this to the company instead of your SS. Then set up an individual 401k at fidelity (easy, no fees). The individual 401k has the same contribution limit (17,500) as an employee plan, but also allows you to contribute 20% of your profit, so you can put more money in a tax advantaged account (total of 52k for contributions and profit share).

Health care and the extra SS/Medicare tax will suck, but if there is potential for income growth and some stability the individual 401k can be a big bonus if you are a saver.

a good rule of thumb is that if you are providing services for a company, and what you are doing is what they are in the business of doing (e.g., associate attorney working for a law firm), then you are an employee and cannot be classified as an IC, unless they can somehow show that they don't exercise any control over how you do your work.

OP: here is a calculator to convert pays from salary, contract w2, 1099 (c2c)...

http://skillserv.com/rcalc.vm

Anonymous wrote:PPs are raising good points about potential down sides. A benefit would be that you could take more business deductions in your taxes as an IC, including office supplies, travel, equipment, etc.

Another is that you can stash a lot for your retirement when you get paid a lot - "Get this: A 52-year-old entrepreneur netting $300,000 could use a one-person defined-benefit pension plan combined with a solo 401(k) to shelter a total of $169,800 from current income taxes, ..."

http://www.forbes.com/sites/ashleaebeling/2013/02/13/how-entrepreneurs-can-get-big-tax-breaks-for-retirement-savings/

PPs are raising good points about potential down sides. A benefit would be that you could take more business deductions in your taxes as an IC, including office supplies, travel, equipment, etc.

Anonymous wrote:

This is why Microsoft now "fires" their contractors for a few months in an X-year period. The IRS is seeing them as employees and Microsoft was getting in trouble.

I wonder whether the IRS is also willing to reclassify all of the government contractors performing the duties of the federal workers to the government employees eligible for the full government employees' benefits? I'm sure some of the contractors wouldn't object.

Anonymous wrote:
If they have direction over when and or how you perform duties, an "IC" can be considered an employee.

Even though the Company has no contract with an IC and doesn't classify that individual as either a contractor or employee? In their case, it is only a contractor of the Firm, and they pay "professional fees" to the consulting Firm. The individual is nowhere on their books, that's why I was unsure whether he/she will be considered an employee. I totally get that if they hired someone under a 1099 and made him perform the employee's duties, supervised him, established the schedule, provided equipment, etc., then a person would certainly be considered an employee by the IRS (and perhaps SEC, if applicable). But what if they don't issue neither a 1099 nor W-2, but only pay the professional fees to another consulting firm?

Anonymous wrote:

Anonymous wrote:They're probably flouting IRS rules by hiring you as an independent contractor. It doesn't sound like you meet the definition of an independent contractor. IRS has been cracking down on this. You could report them (anonymously?) and they'll be forced to take you on as an employee (or fire you.)

I know a company that hires its contractors through other firms. For example, the Company has a contract with the Firm, and the Firm has a contract with an independent contractor ("IC"). IC works full time from the office and on the equipment of the Company, performing the duties of a regular Company's employee for years. However on paper, the IC isn't in any way related to the Company because he/she has a contract with the Firm. IC definitely isn't an employee of the Firm because they only communicate a couple times a month exchanging invoices, but how would that be possible to prove that an IC is an employee of the Company, if they don't share any employment paperwork at all?

This is why Microsoft now "fires" their contractors for a few months in an X-year period. The IRS is seeing them as employees and Microsoft was getting in trouble.

Anonymous wrote:

Anonymous wrote:They're probably flouting IRS rules by hiring you as an independent contractor. It doesn't sound like you meet the definition of an independent contractor. IRS has been cracking down on this. You could report them (anonymously?) and they'll be forced to take you on as an employee (or fire you.)

I know a company that hires its contractors through other firms. For example, the Company has a contract with the Firm, and the Firm has a contract with an independent contractor ("IC"). IC works full time from the office and on the equipment of the Company, performing the duties of a regular Company's employee for years. However on paper, the IC isn't in any way related to the Company because he/she has a contract with the Firm. IC definitely isn't an employee of the Firm because they only communicate a couple times a month exchanging invoices, but how would that be possible to prove that an IC is an employee of the Company, if they don't share any employment paperwork at all?

If they have direction over when and or how you perform duties, an "IC" can be considered an employee.