I am trying to find out which one is better for a consultant.$60/hr on W2 without any benefits or $70/hr on 1099. Can one of you please explain which would be the better option. This is in CA, so state taxes should also be considered. Any information will be appreciated. I could not find much information about 1099 on the web.
Basically .........it seems........They are same. Same in a sense that in one - you and your employer pay the taxes (W2) and in another you are responsible to pay all the taxes. And depending upon your situtaion you can go either way. If u don't wanna do all the paper works every three months and pay taxes reguraly to Uncle Sam then go W2. All you have to do is file tax at the end of the year. If you go 1099, You have to pay tax to uncle Sam every three months ( I am not sure about exact period, but you cannot work for a year and pay taxes to Uncle Sam at the end of year; You haveto pay tax reguarly like all W2 employee do every paycheck.) If you decided to stay on 1099, then at the end of the year you might be able to deduct some of the expenses for you job like car milegae, parking, comuute, office space and so on. But to me staying on W2 is better, if u don't want the hassels. At the end they will just come out somewhat same.
Red Stripe.......Also Google is wonderful.......there are calculators wheer you can use and see the difference.
Thank you guys for your response. I know that on W2 employer pays half your SS and Medicare tax and you have to pay the other half whereas on 1099, you have to pay the whole thing which is around 15-16% upto 107K and then 2.9% or something like that. I did a lot of research on my own before I asked here. And I understand that either way you will pay almost the same amount in taxes. There is no getting around paying your taxes. I might have phrased my question wrong. What I want to know is in the state of CA approximately how much difference would W2@$60/hr vs. 1099@$70/hr would be. If it is significant where I can get someone to do my taxes and still come out on the positive side, I would go with $70, if its kind of same then I would rather go with $60. Thank you again for your response.
Once you work as an independent contractor , you will be receiving 1099 Misc and in box 7 will show the full amount you have been paid. You have to file as an business income with schedule C , and you may able to deduct some business related expenses and it varies. You need to keep track of you business expenses for audit. In this comparison I have deducted 5000 as business expense therefore the adjustment is 8446. You can put Ruth IRA and something like that may lower your tax liability , still your business expenses should be around 12-15K to be in par.
Thank you Syanjali bro. By this logic, $60 on W2 seems better than $70 on 1099. Do you have any link to this calculator or did you do it on your own. If you do, please let me know.
Sorry the take home amount will be different: , You have to deduct SS tax 6% and medicare tax 1.34% off which will be another 8780 still you have about 84000 vs 78959.
I just put the dollar amount on tax-act.com and got the number.
Conservatively I put 5000 as your independent contractor expenses, If the expenses are less than this amount then your tax liability will go up and take home will be down and vise verse.
But you can not compare your independent work with an employee, one has more freedom than the others.
I do not think you will be comparing the dollar amount only.
