Re: Contract work - 1099 or W-2?

Subject: Re: Contract work - 1099 or W-2?
From: "William Sherman" <bsherman77 -at- embarqmail -dot- com>
To: "Techwr-l" <techwr-l -at- lists -dot- techwr-l -dot- com>
Date: Tue, 4 Jun 2013 21:12:46 -0400

Wow, I missed one of those discussions right up my alley.

W-2 or 1099. It really isn't that simple.

W-2 is if you are an employee. Most contracts you get calls about are really about you being an employee of the contract shop calling you. They bill the client. They pay you. It really is cut and dried but there are snags.

Lately, due to Obamacare (not a political statement), many businesses are trying to reduce their impact from the healthcare laws. As such, many contract shops are trying to recruit contractors on 1099s instead W-2s. This makes the contractor appear to not be an employee, saving them from the insurance issues, BUT this fails the IRS test for whether you are an employee or independent contractor. The difference in rates they offer as an incentive doesn't offset the expenses involved for you. For example, a recent job call was $38 max on W-2, if they really had to, but they would go $45 on 1099, which they really preferred. I would lose a lot more than the $7 per hour difference going 1099.

W-2 if they set time, place, and other conditions on your work. If you know you can telecommute, and they insist you work in the office, you are an employee.

The IRS, until this recent IRS problem, would get you on it as they were doing a lot of audits. (I was audited for 2009 and 2010. Passed both, with additional refund.)

W-2 means you are an employee, and as such, you get unemployment benefits.

With a 1099, you need to show you are a business. You need your office, business name, tax payment setup, and so on. You really are an independent business, so like IBM contracting to XYZ Corp, you set your hours and your schedule and they only specify a deadline, and unless the work cannot physically be done offsite, you set your work location.

You have to pay your own taxes and Social Security. You are not eligible for unemployment, group health care rates, or other benefits. While most don't think about it, when you turn retirement age, you discover that while you made $100,000 plus for a few years on a 1099, SS has nothing for you because nothing was paid in. While hopefully no one here is relying on SS to retire, there is no sense in throwing it away, either.

1099 is often handled by billing cycles, typically 30-, 60-, or 90-days, although those trying to get around employee rules will pay weekly just like a paycheck. If they pay weekly on a 1099, it should be a clue this is a bit shady. This is how construction work handles illegal workers. You work, they pay you on a 1099, they wash their hands of whether you are legal, illegal, or anything.

A 1099 should be realistically almost twice a W-2. In the other part of this thread, 15% cut was mentioned for the shop, but I know in the '80s and '90s most were running from 25% to 33% and some shady ones would run as much as 50% of the billing to the client. So if you are a 1099, figure you are your own shop, so that cut is now what needs to be tacked onto hat you be a decent rate for you.

For example, if you work at $40 on W2, the shop is probably billing $60. Figure loss of UI during downtime. When a job ends, your mortgage, utilities, need for food don't stop. Normally much of this can be covered by UI to lessen your impact. I figure that my downtime is two and a half months average. I have walked from one job into another in a couple of weeks about as often as being out for 3 or 4 months. As such, I plan to survive for about 4 months without hitting real savings and only get nervous on jobs at 3 months. That is when I begin the real effort on getting a job.

Take the $300 UI pay per week (varies great on state - believe you are California and last I saw that was like $480/week). $300 X 13 weeks (3 months) is $3900. Spread that across your work period to see what that adds to your rate.

----- Original Message ----- From: "beelia" <beelia -at- gmail -dot- com>
To: "Techwr-l" <techwr-l -at- lists -dot- techwr-l -dot- com>
Sent: Thursday, May 30, 2013 2:57 PM
Subject: Contract work - 1099 or W-2?

If you have a choice between getting paid on a W-2 or a 1099, which would
you choose?

I am starting to do contracting again after over a decade of direct
"captive" employment, and I don't remember what the advantages/drawbacks

Can anyone direct me to a resource, or tell me what you've done in your
contracting careers?



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