I started working for a company and they offered me $53 /hr on W2 or $55 on 1099.
That employer is suggesting me to take salary on 1099 so that I can save more taxes rather on W2. He asked me to start a consulting company so that my company expenses can be shown on it. I can include my wife as the working partner so that it will be beneficial.
Could you please guide how to proceed.
I suggest that you read this IRS publication: Independent Contractor (Self-Employed) or Employee?. Determining if someone is an employee vs a contractor is not arbitary and your employer may be breaking the law by suggesting that you take on the job as an employee.
Personally, I would take the job for $53/hr because:
- As an employee, your employer pay for half of the Social Security and Medicare taxes at 6.2% and 1.45%. This alone reduced your effective income by $4.2 an hour (so you effectively make only $50.80 per hour)
- Your employer doesn’t have to pay you any benefit if you work as a contractor, e.g., no vacation days, no personal days, no sick days, no retirement plan, no health insurance, no dental insurance, no vision insurance, etc. You get the point.
Basically, your employer will be saving a ton of money if you chose the $55/hr contractor option.
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