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I am looking at a contract in job in Phoenix... It's a 3 month contract that pays $35 per hour and they do NOT provide any benefits (paid time off, sick days, health insurance, retirement, etc). The contracting agency is giving me the option of W2 or 1099.
I know I will pay more taxes for 1099, but I will also be able to write off the health insurance premium, gas and car devaluation for the 70 miles I would drive each day. I would think that would make up the difference. Plus, unemployment is nothing and there is not real job security because of AZ being a right to work state so there is no added security job or financial to a W2. Is there anything else I am missing? What would you choose?
Thanks
Last edited by yellowbelle; 07-31-2015 at 10:27 PM..
Go with 1099. There is no reason for you to get W-2 for such a short period of time, there are no benefits and you are not going to be getting unemployment after only 3 months of service. Yes, you are responsible for paying your own FICA taxes which are 7.65% of your income, however, you can also deduct a gamut of expense that you won't be able to deduct with W-2-the things you mentioned for sure, clothing, meals, etc.
I would ask an accountant CPA who handles both 1099 and w-2. If you do not have one,you need one. I have used one for many years and they pay for themselves with deductions and peace of mind.
The job duties and level of control of the company are what determine whether a worker is a W2 employee or a 1099 independent contractor. Employers have gotten into A LOT of trouble, ie $$$$$$$$, for misclassifying employees to avoid paying the taxes.
First, I would be seriously concerned about the company who gives you this option. IRS regulations determine who is considered an employee and who is considered a subcontractor.
If considered an employee on a W2, when the contract is done, you may be able to collect Unemployment from another state if you had moved to Arizona in the past year.
Either way, you can not deduct your commute to work. If your mileage is work related, such as going from the office to the customer's home, that mileage is deductible. Generally, if a company is paying you on a 1099, they should be paying more to account for the savings to them for payroll taxes.
You are correct about deducting health insurance premiums. However, dependent on where you purchase it and how much you spend, because of the ACA, it may not make any difference in your bottom line.
Also know, the risk of an IRS audit increases exponentially for people who have business income.
All things considered, I personally would elect for the 1099.
First, I would be seriously concerned about the company who gives you this option. IRS regulations determine who is considered an employee and who is considered a subcontractor.
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Not at all. Companies use both employees and contractors all the time, for the same job. We often use contractors for a 3 or 6 month evaluation period, and then hire them or not after their contract is up.
It IS a bit unusual for them to let YOU make the decision. Typically contractors are used for work that is more temporary in nature, which it sounds like this is.
If they are offering the same pay rate, I would certainly take the employment with the W2. Even without the other benefits you save 7.65% right off the top with the employer fica/medicare matching... Plus, unless you are more diligent than the average person about taking about 20-25% of your paycheck and socking it away until April, it will get spent... and then you'll end up owing come tax time.
I am looking at a contract in job in Phoenix... It's a 3 month contract that pays $35 per hour and they do NOT provide any benefits (paid time off, sick days, health insurance, retirement, etc). The contracting agency is giving me the option of W2 or 1099.
I know I will pay more taxes for 1099, but I will also be able to write off the health insurance premium, gas and car devaluation for the 70 miles I would drive each day. I would think that would make up the difference. Plus, unemployment is nothing and there is not real job security because of AZ being a right to work state so there is no added security job or financial to a W2. Is there anything else I am missing? What would you choose?
Thanks
This really isn't an "in AZ" question. Which state you are in doesn't matter, since AZ has state income tax, if you take a W-2, they will withold state taxes. Arizona being a "right to work" state has absolutely nothing to do with this question. You are thinking of "employment at will", not right to work. W-2 has nothing to do with "job or financial security". W-2s are given to people classified as employees. 1099's are for independent contractors. You don't mention workers' compensation, which is something else you should be looking at, could be more or less important depending on what sort of job it is....
And yes, it's always good to get advice from a professional.
Not at all. Companies use both employees and contractors all the time, for the same job. We often use contractors for a 3 or 6 month evaluation period, and then hire them or not after their contract is up.
It IS a bit unusual for them to let YOU make the decision. Typically contractors are used for work that is more temporary in nature, which it sounds like this is.
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Certainly, companies can use subcontractors and employees at the same time. But if you read the IRS regulations, you'll find there are specific differences that determine which classification is applied, generally relating to control. http://www.irs.gov/uac/Employee-vs.-...usiness-Owners
It isn't a choice determined by employee preference.
That was an option when I was a contractor with a Tech company in college in the 90s...BUT the pay was significantly higher if you went the 1099 route (about 20% higher). Basically the contracting company is asking if you would like to associate with them and possibly be placed in contracts going forward or if you would like a temporary relationship with them. They are under no obligation to find you something after the 3 month project (or continue paying you), but if they have something, they will typically offer it to an employee of the contracting company before going to 1099 contractors.
I hate trying to figure out taxes so I went the W2 route and ended up on 3 consecutive contracts before finding permanent employment after I graduated. Not sure about the legalities of this but I would think that major contracting companies like Analysts International would know more about the laws than an Internet forum.
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