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Old 01-18-2007, 07:11 PM
 
424 posts, read 1,396,966 times
Reputation: 152

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Folks,
I realize this is the not the appropriate forum for this question but given that I'm planning to move to NJ and knowing how useful/informative this forum is, I've taken the liberty to post this message. Appreciate your help.

I'm considering taking up a contracting opportunity in Jersey City, and am talking to a vendor. They are quoting a 1099 rate and since, I've never done contracting before I have no idea what that rate means or how it compares to a permanent position. So, here is my question -

Assumptions:

Say, my current salary is $100,000 in a permanent position that has vacation, sick days, holidays, 401K, health insurance and other benefits. What would the equivalent of this be if I were to take up a contract on a 1099 rate.

* I know that there is the SS and Medicare tax that I would need to pay, plus perhaps other taxes. But, what are those exactly?
* Any other things I have to consider to understand the conversion. Since I wont have 401K etc, I would somehow need to account for that.

Thanks a lot!
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Old 01-19-2007, 05:05 AM
 
9,124 posts, read 34,434,679 times
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As you said, you're going to have to pay the employer's 1/2 of SS/Medicare, which is 7.65% of your salary up to $90-something thousand (it goes up every year). Figure $6,000 for that, since the cap will work out to just under $6k.

For the 401K, I'd look at how much you'd normally contribute and what the company's match would be. If you were going to contribute $10k and they'd match $5k, you need to gross that $5k up to cover taxes since it'd be tax-free if it was put into your 401K- probably make it $7k to cover it. You'll need to set up an IRA to put your money into in lieu of the 401k.

As far as sick days, holidays, etc., if your previous salary rate was based on 3 weeks vacation, 5 paid holidays, and 5 sick days, you were actually only working 47 weeks out of the year. Your new hourly consultant rate should be enough to cover your previous salary based on 1880 hours, since that how many you actually worked at the old firm (technically).

Probably the biggest hit will be health insurance. If you were previously part of a group plan and paid a portion of the cost, you're in for a rude awakening when you go for an individual policy. I pay around $300/month for great coverage for my family, yet the COBRA payments would be almost $1,300/month, and an independent plan would be even more. That's an extra $12k out of your pocket.

Bear in mind too that if they're 1099'ing you, by law they can't dictate when you work, how you work, etc- they pay for the work product. If they start telling you you have to work OT, you have to be in at 7, you need to do such-and-such this way, you're an employee- not a consultant, and should be paid as such.

IMHO, I'd be looking to make at least $140-150k as a consultant in lieu of a $100k salary based on losing the "big company" benefits package.

Bob
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Old 01-19-2007, 06:36 AM
 
424 posts, read 1,396,966 times
Reputation: 152
Quote:
Originally Posted by BobKovacs View Post
As you said, you're going to have to pay the employer's 1/2 of SS/Medicare, which is 7.65% of your salary up to $90-something thousand (it goes up every year). Figure $6,000 for that, since the cap will work out to just under $6k.

For the 401K, I'd look at how much you'd normally contribute and what the company's match would be. If you were going to contribute $10k and they'd match $5k, you need to gross that $5k up to cover taxes since it'd be tax-free if it was put into your 401K- probably make it $7k to cover it. You'll need to set up an IRA to put your money into in lieu of the 401k.

As far as sick days, holidays, etc., if your previous salary rate was based on 3 weeks vacation, 5 paid holidays, and 5 sick days, you were actually only working 47 weeks out of the year. Your new hourly consultant rate should be enough to cover your previous salary based on 1880 hours, since that how many you actually worked at the old firm (technically).

Probably the biggest hit will be health insurance. If you were previously part of a group plan and paid a portion of the cost, you're in for a rude awakening when you go for an individual policy. I pay around $300/month for great coverage for my family, yet the COBRA payments would be almost $1,300/month, and an independent plan would be even more. That's an extra $12k out of your pocket.

Bear in mind too that if they're 1099'ing you, by law they can't dictate when you work, how you work, etc- they pay for the work product. If they start telling you you have to work OT, you have to be in at 7, you need to do such-and-such this way, you're an employee- not a consultant, and should be paid as such.

IMHO, I'd be looking to make at least $140-150k as a consultant in lieu of a $100k salary based on losing the "big company" benefits package.

Bob
Thanks Bob. I appreciate it! Some follow up questions (based on some assumptions):

* Current salary: $100K
* 401K company contribution: $3K (pre-tax), about $4K (post-tax)
* Is individual health insurance paid on a pre-tax basis? Meaning, if I took up insurance with UHC for example, would I be paying that pre-tax? For a family, this comes close to about $20K per year (even if it is pre-tax).
* Vacation/holidays: Say, 30 days per year, so total hours worked is 1840.
* Additional tax: say, about 8%.
* Also, say it takes me 4 weeks to find the next contract, so it is another 160 hours less.
* So, total current per hour salary: ((100000+4000+20000)*108/100)/(2080-240-160), comes to about $80.

So, approximately, a $100K salary converts to about $80 per hour. Is that about right?

Also, what if I can get health insurance through my spouse? In that case, should I knock off the $20K and take that as the required per hour rate? In this case, it comes to about $67/hour.

Finally, if someone paid me $72/hour, would it make sense to take up this opportunity?
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Old 01-19-2007, 01:57 PM
 
9,124 posts, read 34,434,679 times
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If you can get insurance through your spouse, the $72/hour probably makes sense. You should be able to come up with some writeoffs for your "business" now that you're self-employed too (office at home, car costs, etc), so you might be fine. Only you can decide though.

Bob
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Old 01-19-2007, 06:37 PM
 
424 posts, read 1,396,966 times
Reputation: 152
Quote:
Originally Posted by BobKovacs View Post
If you can get insurance through your spouse, the $72/hour probably makes sense. You should be able to come up with some writeoffs for your "business" now that you're self-employed too (office at home, car costs, etc), so you might be fine. Only you can decide though.

Bob
Thanks again. The SS and Medicare tax of 8% or so, is it only upto $90K? Or, would it be for the entire salary, if I were to make $75 per hour, that comes to about $150K (roundabouts). If it is the former, should I simply knock off $6 to $7K for additional taxes and thats about it?
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Old 01-20-2007, 05:25 AM
 
9,124 posts, read 34,434,679 times
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The SS portion stops at just under $100k, and that's almost 7% of the total. I'm pretty sure Medicare doesn't have a cap, but that's only around 1.4%.

Bob
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Old 01-20-2007, 10:37 AM
 
424 posts, read 1,396,966 times
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Thanks Bob. From what I've read, this is what it is -

* SS has a cap at $94,200 and is 12.4% upto that, so an additional 6.2%.
* Medicare doesn't have a cap and is 2.9%, so an additional 1.45%.
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Old 02-04-2008, 11:20 AM
 
3 posts, read 13,475 times
Reputation: 10
Default You are missing the real questions

I know this is an old post I am answering but some things need to be said.

Sure you may be paying more out of pocket on 1099 but,
Are you moving some where that will boost your quality of life such as a warmer climate, a particular area such as ocean, mountain, etc.
Are you moving closer to family or friends?
Are you just sick and tired of living in your current city?
Do you hate your current job?

Do yourself a favor and read "The 4 Hour Work Week"

With 1099 you can right off much more than you would normally so many of the costs such as insurance, mileage, clothing, supplies, etc can now be written off.

There are just some things to consider instead of how much money are you going to make. If you go through life just thinking of the money you eventually look back and say "What a waste of life"

Hope this babble helps you or others.
Thanks
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Old 08-30-2013, 08:08 PM
 
Location: Lynnwood, Wa
13 posts, read 22,310 times
Reputation: 51
Quote:
Originally Posted by retrobeast View Post
I know this is an old post I am answering but some things need to be said.

Sure you may be paying more out of pocket on 1099 but,
Are you moving some where that will boost your quality of life such as a warmer climate, a particular area such as ocean, mountain, etc.
Are you moving closer to family or friends?
Are you just sick and tired of living in your current city?
Do you hate your current job?

Do yourself a favor and read "The 4 Hour Work Week"

With 1099 you can right off much more than you would normally so many of the costs such as insurance, mileage, clothing, supplies, etc can now be written off.

There are just some things to consider instead of how much money are you going to make. If you go through life just thinking of the money you eventually look back and say "What a waste of life"

Hope this babble helps you or others.
Thanks
What does this even mean? It's like, "I have something to contribute that is so important it is justified in reviving an old post." Then, that contribution is pretty much "Is money more important than life?" Why bother?
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Old 08-31-2013, 07:15 AM
 
Location: Metro NYC
695 posts, read 817,181 times
Reputation: 748
If you are signing a 1099 contract (as opposed to a W-2 contract), do not agree to any clause which makes you liable for the broker's legal fees and tax liabilities should the IRS determine the arrangement was not a valid independent contractor relationship (e.g. you have to work set hours, take direction from the client, etc.). Also if this is a "corp to corp" arrangement, do your due diligence on the broker to make sure they don't stiff contractors out of their last check; you do not have the protections an employee would should this occur.
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