Am I an independent contractor ? 1099 ?

How is employer paid workers comp available at no cost?

A self employed (independent contractor) pays both halves of the SS/Medicare tax. The regular 7.65% shown on your pay stub and an additional 7.65% self employment tax. On a $40,000.00 income The I/C would have to pay $6,120.00 while an employee would only pay $3,060.00.

 

Mainly because YOU tell them to when you fill out all that employment info at the beginning of your job. You can change the amount withheld at any time, just by contacting your employer and filling out a new form. (can't remember WHICH form it is right now, frigging senility. . .)

There are folks who think this is a good "savings account." It is not. Try to get your withholding down to being very near what your tax obligation is going to be. If you get to the point where you are either just getting a small refund, or owing a small amount at tax time, then YOU have the use of that money for anything you see fit. Whether it is savings, investment or blowing it on wine, women and song, the choice is YOURS.

 

No disrespect intended, the government takes that much out because you do not properly fill out your Form W-4 with your employer. You can ask to adjust it at any time. Many people think that it must be filled out a certain way. This is not correct.

If you have a wife and child, you might claim married filing jointly and 1 exemption. If you are having too much withheld change it to 2 exemptions.

It is not an exact science. You can adjust withholding until it is close to tax liability. I usually get back $150 - $400. They don't run on my money.

The only thing you have to worry about, as an employee, is having 90% of your liability paid in during the year and paying the balance by April 15th. I personally don't like having to pay so I adjust over time until I have a small refund.

 

Do some checking on the rates.

The self employment rate is 13.3% which is the same as the total of the employer/employee rate.

As an employee you pay 5.65% and the employer pays 7.65%.

 

You might want to check this out again.

 

Unfortunately it is this "I get something for free mentality" that continues to cause the faint of heart to think an Independent Contractor position is inherently bad. That is the point Redforeman was trying to make. It is also the reason why I seldom slam a Form 1099 Independent Contractor position or question its legalities. Each situation should be judged on its own merits. I don’t care if the employer has made a bad business decision by structuring this way. What I care about is, is it beneficial to me and do I have the resolve to save for taxes. I analyze it with the tax and benefit information in mind.

It is absurd to think that any employer pays your share of social security, health insurance and workmen’s comp for free. Only someone that does not understand business thinks they get something for free.

I can tell you how I do it. I look at those costs and adjust wages so that when I am done all benefits and wages equal what is fair market for that position. All my costs for that employees wages, taxes, insurance and any other benefits are what that employee costs me.

Now if I pay that person as a contractor, the cost of benefits goes down. So now I pass most of that on to him and take a small piece for my company.

There are no free benefits. This was the point!

 

Okay you got me on a technicality.

When I said Social Security I misspoke. What I meant was Social Security and Medicare. The facts are:

Employee Share

Social Security.........4.20%
Medicare...................1.45%
Total...........................5.65%

Employer Share

Social Security.........6.20%
Medicare...................1.45%
Total...........................7.65%

Total Withholding

Social Security.........10.40%
Medicare.....................2.90%
Total...........................13.30%



IRS Publication 15 (2011)

 

The actual rate for a self employed is 15.3%. A deduction is then allowed for 1/2 of the SS tax paid as adjustment to the income on page 1.

Whether a person works for a company or on their own, the tax is the same.

As a company driver, the employer pays 1/2.

When a company hires a driver, they use an application for employment. They are then required to check on the previous employment for this prospect.

Why can't people see that the hiring of a driver is an employee?

Anything less is just skirting responsibility.

 

And her is one more technicality worth mentioning.

The Self-Employment Tax rate I spoke of is for 2011. It is 13.30% of which 10.40% is Social Security and 2.90% is Medicare.

The 2010 Self-Employment Tax rate was 15.30% of which 12.40% is Social Security and 2.90% is Medicare.

The 2010 Tax Relief Act reduced the 2010 rate by 2.00% for 2011.

What it does for 2012 we can only guess. It is a safe bet that it will soon go back to 15.30% or higher.


IRS Website (in part) at: http://www.irs.gov/businesses/small/article/0,,id=98846,00.html

Self-Employment Tax Rate

The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011. The self-employment tax rate for self-employment income earned in calendar year 2011 is 13.3% (10.4% for Social Security and 2.9% for Medicare). For self-employment income earned in 2010, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

 

I have made it a practice to not be concerned about such things. After all, there are many months left and they might even change it again.

So, until I need to be concerned, such as preparing a return, 2011 does not exist in the tax thoughts I have.