new 1099 needs some help
quentin compson
come in as a 1099 for 3 mos then going perm. i've worked as a w-2
contractor for broker, but never done the 1099.
i've got to talk to them about a rate next monday, so i found the postings
that mention the following formula for independents: Rate x 1000 = annual
salary.
1) is that formula ok still?
2) where should i look to figure out the avergae cost of health benefits
for a husband, wife & 2 children?
3) anything else that i should really know about 1099 contracting?
any help is greatly appreciated.
--
_______________________________________
e-mail: q u e n t i n c o m p s o n 1 9 1 0
@ y a h o o. c o m
_______________________________________
Steve Black
> i've got to talk to them about a rate next monday, so i found the postings
> that mention the following formula for independents: Rate x 1000 = annual
> salary.
>
> 1) is that formula ok still?
I think it's actually Rate x 2000 = salary
If you work 50 weeks/year, 5 days/week, 8 hrs/day, $50/hr, it's
50x5x8x50=$100,000, or, $50 x 2000 = $100k
You can than reduce this by any indirect compensation that would be
paid by an employer under a permanent arrangement, i.e.,
health/dental/life ins, paid holidays, tuition reimbursement, etc.
IOW, anything you'd otherwise be paying for yourself as a 1099.
> 2) where should i look to figure out the avergae cost of health benefits
> for a husband, wife & 2 children?
The best possible solution is to have a full-time working spouse whose
employer is picking up the family health benefits. Barring that, try
to get some kind of group policy rate, check out organizations like
IEEE. I'm sure other Independents on this board can give you other
suggestions. And finally, you can buy a direct individual policy from
a company like Blue Cross, but expect to be shelling out about
$1000/month with a high deductible.
>
> 3) anything else that i should really know about 1099 contracting?
IMO, 1099 is a much better way to go than corps or w2's. You have much
more control over your finances and much less accounting fees,
paperwork and general BS than you do with a corp. And the Schedule C
deductions you get with a 1099 make it superior to a w2. Tax-wise it's
very simple, 1099 gross goes onto your Schedule C along with your
business deductions, then net profits/loss go from the Sched C go onto
your 1040. After that it's just a matter of filling out your personal
return. What you do need to do on a 1099 is send in estimated
quarterly tax payments. You also have the opportunity to open a SEP or
Keogh plan for retirement.
Regards,
Steve
Robert Pullman
Contract wages should be more than wages for employees because employees
cost more than contract workers (benefits, social security, Medicare,
unemployment, administrative overhead).
Do you know what your salary will be in 3 months?
"quentin compson" <quentincompson1...@nowhere.net> wrote in
message news:Xns93C458B556D08q...@130.133.1.4...
Charles Calvert
<quentincompson1...@nowhere.net> wrote in
<Xns93C458B556D08q...@130.133.1.4>:
>i recently got a contract to perm job offer. they have suggested that i
>come in as a 1099 for 3 mos then going perm. i've worked as a w-2
>contractor for broker, but never done the 1099.
>
>i've got to talk to them about a rate next monday, so i found the postings
>that mention the following formula for independents: Rate x 1000 = annual
>salary.
Not quite. That should be rate x 1000 = gross business income. You
have to take into account that you'll be paying twice as much Social
Security and Medicare. You should also account for any overhead you
have: phone lines, computer equipment, software, ISP/website/web
hosting, marketing collateral (business cards, brochures, etc.), etc.
ad nauseum.
>1) is that formula ok still?
It's really intended for independents who are looking at the long
term. If you're going perm in three months and will be working 40
billable hours a week during the interim, and if you won't have any
real overhead, then you might use something like:
S / 2000 * 1.1
where "S" is your desired annual salary. The multiplier 1.1 is
intended to account for the extra SS and Medicare (which I think
totals to 10%, but don't have the correct figures handy, so check it).
You might want to tack on a couple of bucks more per hour to offset
the cost and/or aggravation of filing quarterly estimated federal and
state income taxes for quarters in which you have 1099 income.
>2) where should i look to figure out the avergae cost of health benefits
>for a husband, wife & 2 children?
Where do you live? That plays a big part. Also the ages of the
individuals are important as well.
>3) anything else that i should really know about 1099 contracting?
If you're doing it temporarily as a lead-in to a perm position, I
can't think of too many gotchas.
--
Charles Calvert
Moderator - alt.computer.consultants.moderated
Submission Address: ac...@celticwolf.net
Contact Address: accm...@celticwolf.net
Jerry Stuckle
>
> Never heard of "rate x 1000". Think it's cracked.
>
> Contract wages should be more than wages for employees because employees
> cost more than contract workers (benefits, social security, Medicare,
> unemployment, administrative overhead).
>
> Do you know what your salary will be in 3 months?
>
Actually, the rate x 1000 is about as accurate as any estimate - and
more than most. It is regularly quoted here, and is still fairly valid.
It takes into account non-billable time, self-employment tax, extra
costs such as training, equipment, marketing materials, health
insurance, etc. IOW, a lot of things you generally take for granted
when fully employed.
So if you're billing $50/hr, you should expect to net about the same as
if you were an employee making $50K peryear.
--
To reply, delete the 'x' from my email
Jerry Stuckle,
JDS Computer Training Corp.
jstu...@attglobal.net
Member of Independent Computer Consultants Association - www.icca.org
quentin compson
> It's really intended for independents who are looking at the long
> term. If you're going perm in three months and will be working 40
> billable hours a week during the interim, and if you won't have any
> real overhead, then you might use something like:
>
> S / 2000 * 1.1
>
> where "S" is your desired annual salary. The multiplier 1.1 is
> intended to account for the extra SS and Medicare (which I think
> totals to 10%, but don't have the correct figures handy, so check it).
> You might want to tack on a couple of bucks more per hour to offset
> the cost and/or aggravation of filing quarterly estimated federal and
> state income taxes for quarters in which you have 1099 income.
what about the cost of insurance? when would you add that?
maybe just look at the yearly cost of these, figure out the hourly cost and
add it onto the number supplied from your formula above?
Tony Cox
> come in as a 1099 for 3 mos then going perm. i've worked as a w-2
> contractor for broker, but never done the 1099.
>
Either this firm is so politically well-connected that they aren't
bothered by an IRS audit, or they are naive -- you can't just
decide to pay someone as an employee one month and as an
1099 contractor the next. If they are ever audited, it is likely
that your 'contracting' time will be reclassified as W-2. Most
of the penulty fallout will be on the firm you wish to work for,
but you will be under the microscope too.
If they are prepared to take the risk (and it strikes me that to
even contemplate this is as at best 'unprofessional'), then at least
make sure your own books are in order before you proceed.
--
Dr. Tony Cox
Citrus Controls Inc.
e-mail: t...@coxrt.com
http://CitrusControls.com/
quentin compson
> Either this firm is so politically well-connected that they aren't
> bothered by an IRS audit, or they are naive -- you can't just
> decide to pay someone as an employee one month and as an
> 1099 contractor the next. If they are ever audited, it is likely
> that your 'contracting' time will be reclassified as W-2.
thanks for the info. does anyone else out there have an informed opinion
to share on this?
wondering...
spam...@scoot.netis.com
>Either this firm is so politically well-connected that they aren't
>bothered by an IRS audit, or they are naive -- you can't just
>decide to pay someone as an employee one month and as an
>1099 contractor the next.
You frequently CAN, however, decide to pay someone as a 1099 worker
one month and an employee the next (and thereafter), which is the
sequence described by the original poster and opposite to the sequence
described in your reply. This is done fairly often.
Robert Pullman
"Jerry Stuckle" <jstu...@attglobal.net> wrote in message
news:3F26DD...@attglobal.net...
Tony Cox
news:kt5iiv0nhgmi347ku...@4ax.com...
I should have been clearer. If the person is performing essentially
the same function, then you will be very hard pressed to justify
paying someone who should be an employee as a contractor. This
is because an assessment of the so-called 20 tests on the job
function will necessarily yield the same result. (Check, for example,
http://www.missouribusiness.net/docs/20_tests_employee_contractor.asp)
Of course, you could hire someone as a plumber (1099) and then
find out he was a damned good programmer and take him on
as that (W-2). But that's not what the original poster was talking
about. He'd been proposed a 'probationary' period as a 1099, in
what appears to be a full-time W-2 job..
Apart from the tax consequences (funnily enough, I've never heard
of the IRS coming in and reclassifying employees as contractors), this
is also an area that state employment departments take an interest in,
since it is a well-known mechanism for side-stepping employee
protection laws.
Now it may occur from time to time. People may well get away with
it most of the time. Nethertheless, it won't survive a determined audit,
and of course the IRS can easily do a computer match-up of 1099's
and W-2's which share the same SS number in the companies annual
filings. Perhaps next year they'll get aggressive on this. Who knows.
For our original poster, the tax consequences are probably pretty
minimal if he were to get reclassified to a W-2. Presumably, most
expenses on Sch. C could be moved to employee expenses (subject
to the, what is it?, 2% AGI deduction). He may even get a rebate
of self-employment tax!
I'm not a CPA, just a concerned business owner. We've always been
careful to keep 1099's and W-2's well defined and separate. Perhaps
we are too cautious, but at least we sleep well at night!
Robert W. McAdams
>
> I should have been clearer. If the person is performing essentially
> the same function, then you will be very hard pressed to justify
> paying someone who should be an employee as a contractor. This
> is because an assessment of the so-called 20 tests on the job
> function will necessarily yield the same result. (Check, for example,
> http://www.missouribusiness.net/docs/20_tests_employee_contractor.asp)
>
> Of course, you could hire someone as a plumber (1099) and then
> find out he was a damned good programmer and take him on
> as that (W-2). But that's not what the original poster was talking
> about. He'd been proposed a 'probationary' period as a 1099, in
> what appears to be a full-time W-2 job..
The important point is: If you hired someone as a plumber on a 1099
basis and subsequently decided to offer him a W-2 job, the nature of
your relationship with him would almost certainly be different after
you hired him as a W-2 than it was before that. Before, he would look
like someone who ran an independent plumbing business. Afterward, he
would look like an employee.
> Apart from the tax consequences (funnily enough, I've never heard
> of the IRS coming in and reclassifying employees as contractors), this
> is also an area that state employment departments take an interest in,
> since it is a well-known mechanism for side-stepping employee
> protection laws.
>
> Now it may occur from time to time. People may well get away with
> it most of the time. Nethertheless, it won't survive a determined audit,
> and of course the IRS can easily do a computer match-up of 1099's
> and W-2's which share the same SS number in the companies annual
> filings. Perhaps next year they'll get aggressive on this. Who knows.
Well, that's the point! There are always two questions you need to
ask when you're trying to figure out what the IRS might do. The first
is what would trigger the IRS to examine a situation. The second is
what they would find it they did examine it. Any time the IRS can
identify a situation using a computer, the chances are greatly
increased that it may examine that situation.
In this case, the trigger will be whether a company issued both a W-2
and a 1099 to the same individual in the same year. It cannot be
determine from the W-2 and 1099 which type of work came first, so that
fact will not affect the trigger.
Once the IRS examines the situation, the question will be how the
position held by the worker when he was 1099 differed from the
position he held when he was W-2. If the positions were substantially
similar (as they would be in this case), then the IRS will rule that
the 1099 work was really W-2 work, and the company will owe some back
taxes and penalties.
> For our original poster, the tax consequences are probably pretty
> minimal if he were to get reclassified to a W-2. Presumably, most
> expenses on Sch. C could be moved to employee expenses (subject
> to the, what is it?, 2% AGI deduction). He may even get a rebate
> of self-employment tax!
Another consideration is that Schedule A deductions only benefit you
to the extent that they exceed the standard deduction.
The question is what deductible expenses he'd have if they treated him
like an employee.
Bob McAdams
Fambright
Mike Turco
>
> > Either this firm is so politically well-connected that they aren't
> > bothered by an IRS audit, or they are naive -- you can't just
> > decide to pay someone as an employee one month and as an
> > 1099 contractor the next. If they are ever audited, it is likely
> > that your 'contracting' time will be reclassified as W-2.
>
> thanks for the info. does anyone else out there have an informed opinion
> to share on this?
The IRS has a list of "20 questions" that they use (and you can use, too) to
determine whether or not you are an employee (as opposed to a consultant on
1099). You clearly fall on the "employee" side of the fence. Your new
employer is trying to minimize the cost of bringing you in, and the
potential cost of letting you go, (unemployment, COBRA, etc.) This company
is either ignorant of the law (much more common than one would think,) or
the benefits they perceive in hiring you in this manner outweigh the risks
of being caught by the IRS. (A lose-lose proposition! Either they don't
understand simple business legal concepts or they chose to ignore the law.)
This is a discussion group. You're hearing people's opinions, and some of
the "facts" you hear may not be the straight dope. You should do some
research on your own. Check the IRS website or give them a call on the phone
yourself.
Good Luck!
Mike
Charles Calvert
attribution as I've done below (attributions to me added). XNews
should be able to do this automatically.]
On 30 Jul 2003 05:41:48 GMT, quentin compson
<quentincompson1...@nowhere.net> wrote in
<Xns93C871AB473Dq...@130.133.1.4>:
>On Tue, 29 Jul 2003 17:39:41 -0400, Charles Calvert <cb...@yahoo.com>
>wrote in <4qpdivs991fajkltb...@4ax.com>:
>> It's really intended for independents who are looking at the long
>> term. If you're going perm in three months and will be working 40
>> billable hours a week during the interim, and if you won't have any
>> real overhead, then you might use something like:
>>
>> S / 2000 * 1.1
>>
>> where "S" is your desired annual salary. The multiplier 1.1 is
>> intended to account for the extra SS and Medicare (which I think
>> totals to 10%, but don't have the correct figures handy, so check it).
>> You might want to tack on a couple of bucks more per hour to offset
>> the cost and/or aggravation of filing quarterly estimated federal and
>> state income taxes for quarters in which you have 1099 income.
>
>what about the cost of insurance? when would you add that?
If I had to pay for it. ;) Some folks are covered by a spouse's
insurance, so they don't need it. Buying your own can be expensive if
you get full (as opposed to major medical) coverage. You'd need to
get quotes first, as the cost varies based on age, health, habits and
location.
>maybe just look at the yearly cost of these, figure out the hourly cost and
>add it onto the number supplied from your formula above?
You can do that, although you'd be hard-pressed to find coverage for
only three months.
Tony Cox
news:bju4jvk2mkfgvr1qi...@4ax.com...
> On Fri, 01 Aug 2003 19:06:16 GMT, "Tony Cox" <t...@coxrt.com>
> wrote:
>
> >
> >I should have been clearer. If the person is performing essentially
> >the same function, then you will be very hard pressed to justify
> >paying someone who should be an employee as a contractor. This
> >is because an assessment of the so-called 20 tests on the job
> >function will necessarily yield the same result. (Check, for example,
> >http://www.missouribusiness.net/docs/20_tests_employee_contractor.asp)
> >
> >Of course, you could hire someone as a plumber (1099) and then
> >find out he was a damned good programmer and take him on
> >as that (W-2). But that's not what the original poster was talking
> >about. He'd been proposed a 'probationary' period as a 1099, in
> >what appears to be a full-time W-2 job..
> >
>
> I'm just curious, Tony - how do you reckon all the
> "contract-to-hire" positions that are advertised work? Are
> you suggesting that all concerned are flouting the rules?
> Based solely on my own experience, I'd say it was at least
> 15% of contracts that are advertised in this fashion.
>
>
> Brian.
I'm certainly no tax expert, but from how I read the regulations,
they are indeed flouting the rules -- *if* the job is exactly the
same as the contract.
Now that said, I must admit to being quite cynical about how the
1099/W-2 distinction is made. Perhaps these companies have
heard on the grape vine that the IRS won't pursue them if the
expected payoff is small -- after all, most of the "20 questions"
items are subjective & a good CPA could tie up the IRS for
several days arguing the toss. 3 months worth of reclaimed
SS trust fund withholding is unlikely to amount to more than
a few thousand, and some (imagined or not) change in working
circumstances could easily be claimed & would be expensive
to refute.
In my experience, some clients blatantly flout this law in other
ways too. I have been working at places where 1099's and W-2's
work along side each other, doing the same work, at the same
site, with the same tools, management reporting responsibilities,
and all the other tests which are significant. I can only assume
that these companies (major employers in their areas) are
politically well connected and immune from audit. The tax code
reeks of special interest meddling too (for example, you are
a statutory employee if you deliver beverages door to door,
unless that beverage is milk Go figure). In addition, some states,
(such as California) have a different set of tests from the IRS,
so it is at least theoretically possible to be a contractor in the
eyes of the feds, but a W-2 in the eyes of the state. Or vice
versa.
Me, I want to work, not set myself up for the expense and
distraction of an employment audit (or inconvenience an
incompetent or negligent client). All my contracts are through
our corporation, for which I work as an employee. So far,
7 years on, no problems.
Carol Testa
would get into trouble here. The 1099 contractor is responsible for paying
quarterly estimated taxes(Information on this is available at the IRS
website) based on both earnings and "self-employment tax". It is the
company that may or may not get into trouble with the IRS. Often a company
slides along until some contractor decides he should have been an "employee"
and reports the company to the IRS or the company is audited by the IRS on
another issue. Yes the company would be safer to hire the individual as a
"temporary" employee with no benefits but most companies don't give the
choice to the contractor/employee. They will keep doing things this way
until they are caught. Just protect yourself by filing your quarterly
estimated taxes.
Carol Testa
AARP Tax Aide
"Mike Turco" <mike...@yahoo.com> wrote in message
news:m4wXa.7017$Ye.5007@fed1read02...