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Forum -> Working Women
W-2 or 1099, (employee vs. independent) which is better?



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amother


 

Post Wed, Mar 11 2015, 6:51 pm
Hi,
I'm wondering what the difference between getting paid on a 1099 and a w-2 is. Do you pay more tax on one?
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LiLIsraeli




 
 
    
 

Post Wed, Mar 11 2015, 6:57 pm
Yes, with a W2 the employee takes off tax, with a 1099 you have to pay it all yourself at the end of the year. Also with a 1099 there is an additional self-employment tax.
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SS6099




 
 
    
 

Post Wed, Mar 11 2015, 6:58 pm
Of course W2 is better! With a w2, you pay taxes and your employer pays payroll taxes as well. With a 1099, an individual pays both.
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amother


 

Post Wed, Mar 11 2015, 7:01 pm
W-2, usually employer has to offer insurance. You get disability coverage. Employer must pay his share in taxes.


1099, you do your own taxes. You have to have your own company. You can write certain business expenses off before taking your salary. (I.e. car you use to travel to clients, equipment, etc.). The accountant I spoke to charges $2000 a year to mange your business-another necessary expense.

There are for sure more point that I missed. This is what I came across so far.
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srbmom




 
 
    
 

Post Wed, Mar 11 2015, 7:12 pm
Quote:
The accountant I spoke to charges $2000 a year to mange your business-another necessary expense.


I work part-time but I freelance on the side, so a lot of my jobs pay me by 1099. As mentioned above I pay my own taxes which ends up being quite a lot at the end of the year. But I do not have an "official" business. I list my income on my tax return under the 1099 info and it just goes under my social security number. I do not have an accountant and I do not pay any other business expenses.
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chanie18




 
 
    
 

Post Wed, Mar 11 2015, 7:14 pm
Its not really which is "better", its which is applicable.

They are a different classification, its not like your employer can pick and choose. If you're an employee, you should be on a W2. If you're self employed - an independent contractor, you should be on a 1099. If you're not sure, ask the IRS to determine. Basically they're looking to see if you're acting as an employee or not - who decides when and where you work, which materials you use, do you have many clients or just one boss etc etc.

http://www.irs.gov/Businesses/.....loyee
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kb




 
 
    
 

Post Wed, Mar 11 2015, 7:15 pm
amother wrote:
W-2, usually employer has to offer insurance. You get disability coverage. Employer must pay his share in taxes.


1099, you do your own taxes. You have to have your own company. You can write certain business expenses off before taking your salary. (I.e. car you use to travel to clients, equipment, etc.). The accountant I spoke to charges $2000 a year to mange your business-another necessary expense.

There are for sure more point that I missed. This is what I came across so far.


You do not need to have your own company to get a 1099. Any accountant who told you that and plans to charge you $2,000 for the service is a <censored>.

That being said, if you have a choice, it's better to get a w2. But I never met an employer who gave a choice!
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chanie18




 
 
    
 

Post Wed, Mar 11 2015, 7:33 pm
kb wrote:


That being said, if you have a choice, it's better to get a w2. But I never met an employer who gave a choice!


Its not up to the employer, its determined by IRS rules. Ok so say it to them firmly and nicely, but don't let an employer take advantage! If you're an employee, you're an employee and that's that. Nothing personal, not being difficult, just using the simple determinations.
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MagentaYenta




 
 
    
 

Post Wed, Mar 11 2015, 7:36 pm
amother wrote:
W-2, usually employer has to offer insurance. You get disability coverage. Employer must pay his share in taxes.


1099, you do your own taxes. You have to have your own company. You can write certain business expenses off before taking your salary. (I.e. car you use to travel to clients, equipment, etc.). The accountant I spoke to charges $2000 a year to mange your business-another necessary expense.

There are for sure more point that I missed. This is what I came across so far.

There are no requirements for an employer to offer ins. to an employee in most states. Same with disability. There are many states that do not provide disability ins. to employees and employees must purchase it on their own.
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Talya




 
 
    
 

Post Wed, Mar 11 2015, 8:06 pm
With a w2 employer pays half of social security tax so you each pay 7.5% of your income. With a 1099 you pay 15% yourself.
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youngishbear




 
 
    
 

Post Wed, Mar 11 2015, 8:11 pm
I worked for a company that gave me a choice. It seems like OP does, too.
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chatz




 
 
    
 

Post Wed, Mar 11 2015, 8:31 pm
In general, it is either one of the other. The IRS has specific guidelines.

There are some jobs, however, where the classification can be argued either way. It sounds like the OP is in such a situation. As long as the boss and hired person are in agreement and no one complains to the IRS, the IRS isn't interfering.

W-2 is easier. Your boss takes off taxes and you get the net check. Disability insurance, workers comp - varies state to state.

1099 is more complicated. You have to keep track of income. You can, however, claim business expenses that you wouldn't otherwise be able to claim. So if you have a home office, buy stuff for business use, use your a car for business related purposes, or have other business related expenses, you may pay less taxes with this route. You also have to pay the employee's 7.65% for a total of 15.3% (bit less in actuality). But these taxes are only after expenses have been deducted.

If you have no business expenses, w-2 is probably better. If you have business expenses, 1099 is probably better.

You can do your own taxes if you're a detail oriented person or have a good system.
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amother


 

Post Wed, Mar 11 2015, 8:37 pm
OP here. Thanks everyone. It's not like a prospective employer gave me a choice. It's just that I have several job options, and with one I'd be getting paid with a 1099. So I wanted to know exactly what that entailed....
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frumbasyisroel




 
 
    
 

Post Wed, Mar 11 2015, 8:38 pm
I believe with a 1099 you can take certain deductions that a w-2 employee would not be able to.

For example, if you purchased things for work, you can deduct it against your 1099 income, but not your w2 income. I'm not sure of all the possible deductions and if this would make the extra tax that you'd have to pay worth it, but might be worth speaking to your accountant about
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kb




 
 
    
 

Post Wed, Mar 11 2015, 8:55 pm
frumbasyisroel wrote:
I believe with a 1099 you can take certain deductions that a w-2 employee would not be able to.

For example, if you purchased things for work, you can deduct it against your 1099 income, but not your w2 income. I'm not sure of all the possible deductions and if this would make the extra tax that you'd have to pay worth it, but might be worth speaking to your accountant about


Unless your business expenses are more than 15% of your income, I'd opt for the w2 option.
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chatz




 
 
    
 

Post Wed, Mar 11 2015, 9:17 pm
kb wrote:
Unless your business expenses are more than 15% of your income, I'd opt for the w2 option.


Just to be technical [backside], your business expenses would probably have to be more like 45% to come ahead. Maybe less depending on income tax bracket?

Basically, you normally pay 7.65% employment taxes (social security and medicare) and your employer pays 7.65%. On a 1099, you pay both with a slight discount (so bit less than 15.3%).

Your additional expense is 7.65% of your income.

In order for your total 15% (what you pay on a 1099) to be equal to 7.65% (what you pay on a w-2), your expenses have to be close to 50%. For example:
$10,000 income - Fica & Med employment taxes [ignoring thresholds, ignoring self-employment discounts]:
Scenario #1: w-2: $765
Scenario #2: 1099 (no expenses): $1530
Scenario #3: 1099 ($5000 business expenses): $765

50% business expenses is not off the wall. Depends what you do.
If you have a dedicated home office, you can apportion part of your rent/mortgage as a business expense. If your car is solely for business use, it's all a business expense. http://www.irs.gov/Businesses/.....enses

Also, regarding federal income tax:
Scenario #1 & 2: same
Scenario #3: can be much less

Disclaimer: I am not an accountant
Note: Most jobs, you can't choose to be an employee or contractor
Note2: just being technical and avoiding washing my dishes
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amother


 

Post Wed, Mar 11 2015, 11:14 pm
srbmom wrote:
Quote:
The accountant I spoke to charges $2000 a year to mange your business-another necessary expense.


I work part-time but I freelance on the side, so a lot of my jobs pay me by 1099. As mentioned above I pay my own taxes which ends up being quite a lot at the end of the year. But I do not have an "official" business. I list my income on my tax return under the 1099 info and it just goes under my social security number. I do not have an accountant and I do not pay any other business expenses.


You can probably save money by using an accountant. The upside of 1099s is that you can write off expenses, such as travel, office expenses, etc. An accountant can help you figure out what you can write off in your particular situation. So many people are losing money by doing their taxes themselves. I speak to people all the time who are clueless about a lot of the laws and how to file correctly (I'm not saying you are, just going off on a tangent...)
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summer0808




 
 
    
 

Post Thu, Mar 12 2015, 12:15 pm
Also to point out. If you are eligible for EIC that is your family earns less than $50K and you have work related expenses to deduct. Then your EIC will be increased as well. Just something to keep in mind.
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