Hello All, So I started working at a small business as a sales person, but the boss told me that they will give me a 1099 Form. I did a research on the difference between 1099 and a W-2, and kind of found that a 1099 could be a rip-off, I really want to make sure if the 1099 is a good thing for my future (retirement) meaning, if I pay my own taxes, is it then going to be like a W-2? Please explain to me what the difference is in short and if it is a good option! I can still refuse my boss' job offer if it is bad for me, but I am really interested in the job, and he likes me to work for him since I already made some sales. I live in Massachusetts The pay he offered is $15/hr Please give me some tips Thank you
Joel P2014-05-14T09:36:46Z
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In receiving a 1099 you will not be considered an employee but an Independent Contractor. You will not have any benefits as an employee would have (vacation, sick time, health insurance, life insurance, 401K). Also, the employer can end your contract at any time. Unlike a W-2 employee, you will not be able to file for Unemployment Insurance should you lose this opportunity.
Everyone pays FICA tax. As a W-2 employee, you would pay 7.65% and your employer would pay 7.65%. As a 1099 contractor, you would have to pay the additional 7.65% FICA yourself so you would be paying a total of 15.3% of FICA in addition to what you would owe in Federal, State and Local taxes. You would have to make Quarterly Estimated Tax payments to the government for the taxes that you owe since your "client" (the guy that hired you as a Sales person) isn't deducting the taxes.
My rule of thumb is that the "equivalent" wages would be 1/2 of what he's offering you as a contractor. That's because you have to pay your taxes, his taxes, save for when you are let go, pay for your own insurance, have savings when he forgets to pay you or claims you really didn't work 40 hours, he'll pay you for 25. And, oh yeah, he'll ask you to spend your money for business related expenses, but won't reimburse you because you can deduct it.
Would you take this "job" if it paid $7.50 an hour?
As for retirement, when a contractor fills out a 1040 with a schedule C, he or she will also fill out a schedule SE for the self-employment tax. As long the tax return is timely, the schedule SE will be sent to the SSA and will show up on your earnings history for social security purposes. You can also take some of your net earnings and contribute to an IRA.
Note, if he's paying you by the hour and not by the sale, you are probably an employee. Some sales people are hybrids--"statutory" employees, but still get a W-2. While you may feel you can agree to this arrangement, you can't actually agree to let him break the law.
By the way, when you did your research, did you download a copy of the IRS form SS-8? Did you run the numbers thru a dummy tax return? Did you price insurance?
I would prefer to be an employee with an employer and a W-2 form after the end of the 2014 tax year during the 2015 tax filing season. Self employed independent contractor using your daily written receipt book records to report your gross income on the schedule C or CEZ along with the SE to determine your NET PROFIT or LOSS from your business income during the tax year for this purpose. SE your social security medicare tax amounts that you would OWE on your NET profit amount that would end up the page 1 line 12 from the schedule C and any SE tax owed page 2 line 56 and page 1 line 27 Deductible part of self employment tax attach schedule SE line 27 $$$ amount. Starting, Operating, or Closing a Business Starting a Business Starting a business could be exciting. If you're considering starting a business, start here. This section provides information on everything from a checklist for a new business, to selecting a business structure, and more.
The employer that gives you a 1099-misc is having you pay their cut on social security, Medicare, and self employment taxes. You will have to file a schedule C when you do your taxes. They should pay you more when you perform services.
you are very likely NOT an independent contractor working as a sales person, altho this is often the case for people like car salesmen the major difference between a W-2 employee and an independent contractor is 'control', and the word independent means just that--you come to work when you want to, you do the job as you choose as long as it gets done, and when your 'contract' is up, you can leave or request a new contract