Question

If you were offered a position with a company which would allow you to take the position as either a W2 employee or an independent contractor as a 'consultant' explain which one you would choose under these circumstances and why:

- The job pays $100,000 per year paid monthly. One month vacation for both 1099 & W2. Job stability is equal regardless of which option you choose. No other benefits beyond what is required by Federal Law. You are in the 25% income tax bracket. You have to commute fifty miles to the employer's workplace (travel costs on you) and you must do so every day Monday thru Friday to get water samples needed to do your job. As a W2 employee you will have to share laboratory space with a real nerd who you don't like working with. You have a similar lab in your basement. You are a control freak and don't like being told how to do things and when to do them. It is given that there is no difference in job stability between taking this job as 1099 or W2.

- At least once a week you have to travel to the client sites (employer paid travel) which are in the deep jungle and the chances of injury and contracting diseases transmitted by mosquitoes are a concern. Ten percent of prior employees have died or been permanently disabled from these health threats. Its a dangerous and exciting job and you have a talent and passion for it. Your accomplishments will be published in the press. Your demise or injury pursuing cures for mankind will also be published.

- You are married, have three kids four, six and eight years old. You have a stay at home spouse who relies on you to bring home the bacon. Your highest priority is to provide for them. You will subordinate your lust for fame, glory and adventure found in your professional nitch and your aversion to being 'controlled' by others and even working with people you detest in order to provide for your family... if need be.

- This job will require all of your time available to work. Even as an independent contractor you won't have time to take on any other contracts.

- Your health insurance like all personal health insurance does not cover you for injuries or illnesses incurred while working. You don't have life or disability insurance. The employer provides no health benefits except those required by law. Assume you aren't able to acquire any insurance as an independent contractor to replace employer provided L&I and unemployment (though that is pausable as a high cost). Also, you aren't taking a 'home office' tax deduction for the lab in the basement because that flags you for an audit.

Assignment: 1. Identify the best choice between W2 and 1099 based on the above conditions and priorities. (Only one correct answer.) Explain your choice by explaining the most significant 'decision making' benefits of one over the other that apply to this job situation in the context of your given priorities and circumstances. Where a benefit or expense has a dollar value provide the amount involved and how it is calculated. Identify the savings or greater costs in dollar amounts related to Social Security, Medicare and federal income taxes of W2 versus 1099.

Answer 1

I will Choose 1099 an independent contractor who receives pay in accord with the terms of the contract and get a 1099 form to report income on their tax returns. They can set their price and companies tend to pay a higher rate to 1099 contractors than they do for w2 employees because there are fewer costs associated with hiring self-employed workers. The major reason to choose 1099 contractor as they can expertise in a particular area and have the possibility to explore more.

While when it comes to taxes independent contractors have little to look forward to, a few advantages of 1099 tax set up are that they can put more money away in tax-deferred accounts like SEP, IRA and have the possibility of deducting certain business-related expenses on taxes.

If we choose 1099 independent contractor can pay taxes from their own and provide their own benefits and do not withhold their taxes from paycheck

Independent contractors pay a self-employment tax because they work with don't withhold social security or medicare taxes for them. The self-employment tax rate is 15.3 percent