Help me think this through, independent contractor position

[my3bears]

I have been an independent contractor since forever!

Cons:
No benefits. Health insurance and 401k matches can be a nice chunk of change right there. No disability insurance or medical leave. So if you have an emergency and can't work for an extended period of time, no money. Which is the worst time to have no money coming in...

No paid time off. Oh you're sick? No money. Oh you want to go on vacation? No money. Again, often the worst time to NOT have money coming in.

Have to pay both sides of social security taxes. If you are an employee, your company pays half, around 7.25%. If you are a contractor, you pay BOTH. 2014 rate for both is 15.3%. For me in PA, I pay 15% federal taxes, 3.07 state taxes, and 15.3% fica. Total = 34%. My DH is in the same income bracket as me and pays 27% because he's an employee.

Pros:
I have high business expenses that I get to deduct. Mileage, continuing ed, clearances, therapy materials, phone/internet easily add up to $1,000 - $1,500/month for me. That's an easy 18k that I don't have to pay taxes on. If I were paid as an employee I would have to pay for those expenses anyway, and there is no way I could afford it.

Can contribute higher amount to retirement via SEP-IRA. Limits for SEP-IRA are 25% of salary or 52k. Contributing to a SEP also helps me reduce my taxable income.


So as someone who is self-employed myself, I don't really recommend it unless you are able to take advantage of deducting expenses and retirement. I would also try to negotiate a higher rate of pay based on the fact that you're saving the company 7.25% just on the FICA taxes alone. Factor in not having benefits or PTO, I'd try to negotiate even higher than that.

I don't think it matters on a resume for contractor vs non-contractor? I can't think of where you would put that on a resume or why it would come up in an interview?

[LoveTrains]

The biggest consideration is taxes. You will be responsible for the employer and employee portion of FICA.

[jwright]

my3bears hit the nail on the head.

The only thing I would add is that if you are laid off or terminated, you are not eligible for unemployment benefits since you were self-employed.

[doobeedoo]

IME, most independent contractor positions do pay a premium per hour to offset the additional costs and lack of benefits, so I would never accept an independent contractor gig that paid the same or less than the equivalent FT position unless there is some very compelling reason to do so. How much leverage you have is based on supply/demand for your skills.

Another thing to consider is insurance. Not health insurance but business insurance...some companies contractors to carry specific types of insurance (such as E&O).

I don't think it matters much, if at all, whether your position was contract or FT to future employers. Your employment history patterns are more important (job hopper or not, etc.). One possible exception: some employers are wary when long term independent contractors suddenly want to become FT employees again.

[LoveTrains]

Sept 3, 2014 9:14:43 GMT -5 @bluesky said:

my3bears thank you so much!  That is very helpful.  I am leaning towards applying for this position because I've been a SAHM mostly and also it will be a work from home position, part-time, which is nearly impossible to find.  

I know I should see a tax consultant, but I hate to spend money on that considering my income is so low.  I think I may not be doing the whole independent contractor thing correctly.  When I started in January with very little work (took on a couple projects totaling $2k) all I did was apply and receive an EIN.  I gave it to the company I am doing work for.  But I have not been paying estimated taxes nor social security, etc.  How/when do you pay for that stuff?  I figured because my pay was so low at the time that I could just wait until tax time and claim it.  

if your income is that low, you might not have to pay estimated taxes on a quarterly basis. You would pay it all when you file your regular taxes on April 15th (or earlier) on a schedule C.

The schedule C will hvae you report your income from your "business" - as an independent contractor, you are self employed. Against that income, you can then deduct business expenses like a home office, office supplies, travel, internet, phone, etc. 

I do a schedule C for income I earn through mystery shopping. I just do it on turbotax. It's totally sufficient for my needs. I never owe that much in taxes because at most I earn $1-$2K a year this way. I just up my withholdings at my regular job to compensate. If your H is a regular employee, he can up his withholdings to compensate as well if you file MFJ.

[msmerymac]

I'm an independent contractor, and my major benefit is getting to work from home and having a somewhat flexible schedule. The lack of 401k (although my company doesn't match anyway), benefits, and job protection (unemployment insurance and FMLA being the big ones) are the big downsides. I also pay taxes quarterly and it's a little difficult to sock away a big chunk of change in my tax savings account every month, just to watch it disappear once a quarter (unlike when you are paid as an employee and never see the money, except in the gross income column on your paycheck!).

Anyway, I would 100% choose a job as an employee with benefits over a contractor job without. I'm lucky to be able to contribute to other tax-advantaged retirement savings vehicles and to be on my husband's health insurance, and to also not be the primary breadwinner around here (otherwise the lack of job security would be more stressful). But since I work from home and the job is fairly secure for what it is (I've been employed for the same company for 8 years, a contractor working remotely for almost 2, so it's basically permanent and they are required to give me 1 month notice of termination), I'm not under a ton of pressure to find something else.

ETA: I don't distinguish on my resume between being a full time employee or a contractor. It's somewhat irrelevant, since resumes are for job skills and accomplishments, IMO.

[msmerymac]

Sept 3, 2014 9:14:43 GMT -5 @bluesky said:

my3bears thank you so much!  That is very helpful.  I am leaning towards applying for this position because I've been a SAHM mostly and also it will be a work from home position, part-time, which is nearly impossible to find.  

I know I should see a tax consultant, but I hate to spend money on that considering my income is so low.  I think I may not be doing the whole independent contractor thing correctly.  When I started in January with very little work (took on a couple projects totaling $2k) all I did was apply and receive an EIN.  I gave it to the company I am doing work for.  But I have not been paying estimated taxes nor social security, etc.  How/when do you pay for that stuff?  I figured because my pay was so low at the time that I could just wait until tax time and claim it.  

TBH, depending on how much your husband withholds through his job, I think it's extremely unlikely you'll get dinged for not paying quarterly. In fact, if you make less than something like $4500/year (don't quote me on that) as a contractor, I think you're exempt from even considering quarterly payments. 

In the future, if needed, you can send checks to the IRS with quarterly payment coupons (turbo tax can set this up for you based on the taxes they estimate you will have to pay) or you can pay online: www.irs.gov/Payments. The quarterly deadlines are April 15, June 15, September 15 and January 15, IIRC. I think safe harbor is 90-100% of what you paid in taxes for the previous year, or 110% for high income earners. Don't forget about paying quarterly state income tax, if you live in a state with income tax.

[my3bears]

Sept 3, 2014 9:14:43 GMT -5 @bluesky said:

my3bears thank you so much!  That is very helpful.  I am leaning towards applying for this position because I've been a SAHM mostly and also it will be a work from home position, part-time, which is nearly impossible to find.  

I know I should see a tax consultant, but I hate to spend money on that considering my income is so low.  I think I may not be doing the whole independent contractor thing correctly.  When I started in January with very little work (took on a couple projects totaling $2k) all I did was apply and receive an EIN.  I gave it to the company I am doing work for.  But I have not been paying estimated taxes nor social security, etc.  How/when do you pay for that stuff?  I figured because my pay was so low at the time that I could just wait until tax time and claim it.  

I hear you. Both of my parents are self-employed, so I basically learned everything from them for free. And now my husband does the books for me for free since he's an accountant. The good news is, anything you pay to a tax consultant is a deductible business expense!    I actually incorporated and use intuit now for payroll. It costs $41/month (another business expense deduction!), but I can sleep at night knowing I pay my taxes monthly.

Is there someone at the company you can get free advice from? I know that some of my funding sources do give people some pointers since they know it's like learning a new language. Or you can troll around the IRS website to see what you can figure out? I might suck it up and pay to talk to an accountant 1x and go from there on my own, but I'm a nervous person. 

Over all though, the people who work at the IRS are very nice and helpful. Between my parents' companies and my own, we have a number of stories of making legit mistakes and working things out no problem. My DH made a mistake, and was a month late with our taxes one year (March 15th for businesses and April 15th for individuals, he did both April 15th, oops). They socked us with like an $800 fine and interest. He called, basically said "I'm the accountant for my wife's business and I screwed up and am sleeping on the couch" and they waived all of it! 

Last advice - if I were you I would NOT deduct a home office square footage. That is historically known as a big red flag for audits. If you do want to deduct it, definitely meet with a tax accountant just to make sure you're doing everything right!