Re: Contract work - 1099 or W-2?

["William Sherman" <bsherman77 -at- embarqmail -dot- com>]

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?