W-2 vs 1099

[will_be_there]

All:
What are the pros and cons of working as a contracter as W-2 and 1099.

Any suggestions, comments and pointer to more info are welcome

Thanks

[dsatish]

Not much difference for most of the people. W2 is always better because the employer will take care of paying the social security taxes. With 1099 you have to pay the social security tax(and medicare) of 15% every month. So you need to have a personal accountant. Also for buying a house, you need W2 or salaried employment (with 1099 you need atleast 2 years prior 1099 record to get mortgage approval).
Still some people prefer 1099 because they think that they can show lot of tax deductions, thou i am not sure how effective that will be.

[AmericanWannabe]

Originally Posted by will_be_there

All:
What are the pros and cons of working as a contracter as W-2 and 1099.

Any suggestions, comments and pointer to more info are welcome

Thanks

For two-worker family, the ideal approach is husband get W-2 and benefits
and the wife get 1099 or other other way aropund

[TheRealCanadian]

Originally Posted by dsatish

W2 is always better because the employer will take care of paying the social security taxes. With 1099 you have to pay the social security tax(and medicare) of 15% every month.

If you are on 1099, rule #1 (and there are lots of rules) is to ensure that the employer pays you at least 7.5% more gross. 6.2% will cover the FICA, and 1% will cover your hassles in terms of quarterly tax payments and the like.

So you need to have a personal accountant.

An excellent idea. Any relationship with an accountant should be like your relationship with an attorney: you are not paying him or her to fill out forms - you can do that. You're paying for advice and suggestions.

Also for buying a house, you need W2 or salaried employment (with 1099 you need atleast 2 years prior 1099 record to get mortgage approval).

That's less true nowadays, due to larger numbers of self-employed individuals. You might get dinged with a quarter or half point extra interest, but as long as you can document a substantial, regular income you should be OK, even if you need to hunt around a bit.

Still some people prefer 1099 because they think that they can show lot of tax deductions, thou i am not sure how effective that will be.

Very. On Schedule C you can deduct all kinds of goodies for business. Most prominent are your car for business (my family has three cars so I can easily claim 100% of one car for business) and your health insurance, and any other miscellaneous things that would never be deducted as an individual since they are subject to the 2% threshold.

Then you deduct 100% of your health insurance premiums. For most folks, that's a $4000 to $9000 per year deduction - approaching the same size as mortgage interest on a $150,000 mortgage.

Now that you've deducted all that on Schedule C, we go through all of the fun personal stuff like state/local taxes, mortgage interest, HSA deductibles, etc. etc.

Going from W-2 to 1099 is rarely "better" or "worse" in general after the GC. The details make the difference. What's helpful is to figure out all of your numbers in advance and negotiate a 1099 rate 5% or more above that and you'll come out ahead. Negotiating before you know all of your costs is a recepie for disaster.

[AmericanWannabe]

Originally Posted by TheRealCanadian

If you are on 1099, rule #1 (and there are lots of rules) is to ensure that the employer pays you at least 7.5% more gross. 6.2% will cover the FICA, and 1% will cover your hassles in terms of quarterly tax payments and the like.

With W-2, you can have 401K plan. With 1099, you can have IRA
but the ammount is much less. There is something called
Koehg plan for self-employed