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W2 versus 1099 Rate

Posted on 2012-03-21
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If I am making $75 an hour 1099, what would be a good W2 equivalent to ask for instead?

thanks!
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Question by:BobCSD
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by:Paul-B
ID: 37748452
There are quite a few uknown factors here needed...but shooting from the hip sort to speak it would be roughly 95.00 or higher.
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by:BobCSD
ID: 37748481
Woah. I think you misunderstood. A 1099 rate is always higher than a W2 rate, because the company is paying half of the self-employment tax, workman's comp, etc., rather than me paying 100% self-emplyment tax, etc.

So I know I'm looking for a W2 rate that is lower, not that much higher. That would be outstanding, but that ain't gonna happen.

Anyone else?
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awking00 earned 500 total points
ID: 37749127
In simplistic terms, $75/hr. shown as miscellaneous income (i.e on a 1099) would be subject to FICA self-employment tax of 15.3% or $11.475 and $75/hr. shown as wages (i.e. on a W-2) would have 7.65% ($5.7375) taken out with the difference being paid by the employer. On that basis a wages income of [approximately] $69.26/hr. would be roughly equivalent. However, things are not quite so simplistic. Other factors to consider are the wage earner has income withheld each pay period while the miscellaneous income earner doesn't have to pay until taxes are filed (although there might be an estimated tax requirement). Additionally, there is a limit on the amount of Social Security that is taxed. For 2011, that limit was $106,800 and, at $75/hr., assuming 52 weeks at 40 hours a week, one would earn $156,000 meaning for the last $49,100 of earnings, the miscellaneous income earner would keep all of his $75 while the equivalent wage earner at $69.26 would only get to keep that amount. To further complicate matters, typically the 7.65%  FICA was divided between Social Security (6.2%) and Medicare (1.45%) but, for 2011 and 2012 the Social Security portion was reduced to 4.2% for employees but remained at 6.2% for employers. It is highly likely that the withholding reduction will go away in 2013, so that should play a part in the wages versus miscellaneous income equation. Hope this helps.
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by:BobCSD
ID: 37749182
I was asking for $75 1099 and $70 W2, but the employer said that $70 W2 was thousands of dollars more out of their pocket due to workman's comp and FICA.

Does that sound right on their behalf? Would they pay a lot more out of pocket for W2 even at the lower rate?

thanks!
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by:Paul-B
ID: 37749228
I thought what you were saying is, in a nutshell, what do I ask for in order to be equivalent to me(you) making 75$ an hour after taxes/deductions. Sorry. So it seems you are really looking for how much do you ask for so that it ends up costing the company an equivalent of $75 per hour after they pay their part. Yes?
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by:BobCSD
ID: 37749260
I did ask the first question, which I thought would take into consideration the employer's expenses. But after reading your response, it didn't so I'm asking that as well. I want to be fair to the employer, but I also don't want ripped off just because they say so.

So yes, for further clarification, what is a fair rate to ask the employer for W2 so that I get the same thing, but they don't have to pay more. Is that even possible?

Because if my equivalent is $69.26, and it still costs the employer more in his expenses, then going lower would rip me off. So the best thing for both of us is me going 1099. Right?
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by:BobCSD
ID: 37749277
>>for 2011 and 2012 the Social Security portion was reduced to 4.2% for employees but remained at 6.2% for employers

Are you saying here that the self-employed person only pays 4.2% versus if the employer is paying it on their behalf it is 6.2%?

thanks!
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by:Paul-B
ID: 37749294
If you're not on the payroll at all... as in you don't have some sort of split compensation thing going, any thing they 1099 you for you will be responsible for paying all taxes/deductions on. Normally if you are subcontracting to a company (like you are freelancing) you don't get a W2 at all of course, just the 1099.

If you are going 1099 route then you want to charge usually more money than you would of course of you were on their payroll.
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by:awking00
ID: 37749316
The self-employed person will pay a total of 13.3% (1.45% Medicare normally withheld from employee + 1.45% Medicare normally paid by the employer + 4.2% Social Security normally withheld from employee + 6.2% Social Security normally paid by the employer)
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by:nickg5
ID: 37769121
Are you referring to 1099-Miscellaneous?
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Here is a brief comment about self employment.

"Most people who pay into Social Security work for an employer. Their employer deducts Social Security taxes from their paycheck, matches that contribution and sends taxes to the Internal Revenue Service (IRS) and reports wages to Social Security.

But self-employed people must report their earnings and pay their taxes directly to IRS.
You are self-employed if you operate a trade, business or profession, either by yourself or as a partner. You report your earnings for Social Security when you file your federal income tax return. If your net earnings are $400 or more in a year, you must report your earnings on Schedule SE in addition to the other tax forms you must file."
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I was self employed for awhile and had to have income of at least about $5000 a year (not sure the exact amount without checking) for my income and taxes paid to "contribute" to my social security.
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by:nickg5
ID: 37793075
Here are some comments about your subject:

Form 1099 series is used to report various types of income other than wages, salaries, and tips (for which Form W-2 is used instead). Examples of reportable transactions are amounts paid to a non-corporate independent contractor for services (in IRS terminology, such payments are no-employee compensation).
http://en.wikipedia.org/wiki/Form_1099#1099_series

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Here are some differences between a W2 job and a 1099 job.
1. 1099 you pay about double the social security taxes as on a W2. This is because you pay the employer's portion and the employee's portion on 1099 versus only paying the employee portion on W2.
2. 1099 you submit federal taxes to the government each quarter for moneys earned. nobody is going to take out fed income tax, fica, federal or state income tax for you each pay period.
3. 1099 you deduct expenses from income and only pay tax on income.
4.  no unemployment insurance paid on your behalf on a 1099 job, so if you are laid off, no unemployment to be collected for this job.

1099 is for self employed individuals and is typically for completion of a set project like a roof or web page etc. There are over 20 very narrow criteria that the IRS uses to determine if declaring a worker to be 1099 is legal. Many agencies and employers will try to declare their workers 1099 contractors to get out of paying payroll taxes.

The IRS uses very narrow criteria, so first, make sure you're in the right category.

If you are on a 1099, you should set aside maybe 30% of your income for federal taxes and pay it quarterly and state taxes as well.

If you are on a 1099 and you want to be profitable because you pay both employer and employee on the Social Security tax, you pay for your own health insurance, travel, and supplies. Save every receipt for every business-related expense.
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