Is anyone here an independent contractor? Help please!

sjunky13 · Jun 30th, 2008, 02:27 PM

I am about to accept a job that will hire me as an independent, meaning no health care, no taxes taken out, no 401k, I will be getting about 20 k more a year than my previous job, the new job has much more responsibiliies and 80 percent travel

. After 3 months I get a 6.5 percent raise

. I am nervous as this is a big change for me. I am scared of being independent, any have any advice? Please excuse my grammar and spelling, I havent slept in 2 days

redney · Jun 30th, 2008, 02:45 PM

Congratulations on your IC (also known as a 1099) gig!

I'm assuming you are in the US - if so, please make yourself aware of US employment and tax laws and obligations. Here are some good sites to start:

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

http://jobsearchtech.about.com/od/laborlaws/l/aa121800.htm

Please also read the links on these sites.

One of the biggest changes you'll experience is that YOU are responsible for paying all of your federal and state income taxes and other employee withholdings, instead of an employer deducting these from a paycheck each pay period.

This can be a very large financial hit if you're not used to it. Most ICs I know pay estimated taxes quarterly to offset the possibility of a huge lump sum at the end of the year.

Depending on your financial arrangement, you may also need to invoice the company for your services (are you fixed-fee or time and materials?) on a regular basis and collect payments in a timely manner. Depending on the company's employees who are supposed to pay your invoices, you may also find yourself following up to ensure you are paid on a regular basis.

For healthcare coverage, you may wish to purchase an individual plan from a major insurer. You can Google to find options.

Good luck!!

sjunky13 · Jun 30th, 2008, 02:53 PM

Thanks for responding, what is so strange is I get an anual salary. I get expenses. They do this so they do not have to pay health coverage and unemployment tax...ect. That is why my salary is higher, they have no out of cost. I will have to find a great accountant. I also may become an llc. It seems like a lot of money, but then again, those taxes!

UK2ME · Jun 30th, 2008, 02:59 PM

My husband plays in a band as an IC. When he was substantial money from it, he set himself up as an S-Corporation. Now he's not earning the bulk of his money from it, it cost more to maintain the S-Corp than it was worth. Although I'm not a US Citizen and the whole tax thing is pretty odd to me anyway, the one piece of advice I can give you from our experience is to get a good accountant, not just a H&R Block. That, and keep all your receipts.

Vegas Long Legs · Jun 30th, 2008, 03:27 PM

Quote:

Originally Posted by sjunky13

Thanks for responding, what is so strange is I get an anual salary. I get expenses. They do this so they do not have to pay health coverage and unemployment tax...ect. That is why my salary is higher, they have no out of cost. I will have to find a great accountant. I also may become an llc. It seems like a lot of money, but then again, those taxes!

Is this a legit company? I'm not sure what they are trying to pull is legal anymore, there have been alot of crackdowns on this kind of stuff.
I would think you'd need at least 33% more in order to cover yourself on taxes etc. Otherwise you are getting screwed. You're going to pay about 16% in SS taxes alone.

redney · Jun 30th, 2008, 03:37 PM

Quote:

Originally Posted by Vegas Long Legs

Is this a legit company? I'm not sure what they are trying to pull is legal anymore, there have been alot of crackdowns on this kind of stuff.

Absolutely, this sounds very fishy and possibly against employment laws regarding the legal definitions of an independent contractor and employees and tax implications.

sjunky13 · Jun 30th, 2008, 04:09 PM

It is a legit company . Any links to where I can find these labor laws, now I am nervous.

lorihmatthews · Jun 30th, 2008, 04:29 PM

I contracted for 5 years before moving into my permanent gig last year. Most of the contracts I had were W2 (taxes taken out) but I did have one that was 1099. Make sure that you put enough aside for taxes next year. In fact, put aside MORE than you think you'll need. My accountant told me to put aside 40-50% of my pay and I should have made sure that I had 50%+ put aside. It was no fun paying tax on that money.

Also make sure that you set yourself up with a good health insurance plan. Are they providing you with any vacation days or will it be no work, no pay? That can be a pretty big chunk.

Vegas Long Legs · Jun 30th, 2008, 04:55 PM

Lori - you contracted with one company for 5 years or had many different gigs over the 5 years?

Red - My DH claims what it boils down to if a "job" tells you when you have to work (like 8-5 M-F) its not a 1099 situation. Is that true?

redney · Jul 1st, 2008, 05:26 PM

^^According to the IRS (http://www.irs.gov/businesses/small/...=99921,00.html) 3 criteria are used to legally distinguish between an Independent Contractor (1099) and employee (W-2):

1. Behavioral (does the company control when and where someone works, training, and equipment used on job)
2. Financial (who determines payment, reimbursable expenses and opportunity for profit/loss)
3. Type of relationship (duration, expected to continue, benefits and type of work performed - is it central to company's activities)

There's also a form on the IRS site that you/your company can complete and submit to determine IC status or not.

And then, from here: http://jobsearchtech.about.com/od/la...l/aa121800.htm it states:

"Companies don't have to withhold federal, state and Social Security (FICA) taxes, or pay unemployment or workers' compensation insurance for independent contractors. They also don't need to offer benefits like paid sick leave, vacation, health insurance and stock options, as they do to attract and retain employees. In fact, companies don't have to offer much of anything to independent contractors, except that for which they've agreed by contract.independent contractor agreement[/url]). That saves tons of paperwork and big bucks, giving dishonest companies lots of incentive to cheat independent contractors of their rights. The cheaters (and naive) misclassify workers as independent contractors, but still attempt to control them as employees. In doing so, they reap the benefits of both worlds, while depriving independent contractors of the very reason they became independent contractors in the first place: to be their own bosses.

Many misclassified independent contractors don't fully understand the difference either, which helps to perpetuate the problem. Here's how it's supposed to work when you are correctly classified as an independent contractor:

· Companies are not your employers per se, but your clients. As such, they are not entitled to direct you in your work.
· Of course, your clients have a right to say what they expect for the rates they're paying you, but only as it relates to the outcome of the project.
· It's your right to decide when, where and how to get the project done. "

lorihmatthews · Jul 1st, 2008, 06:40 PM

Quote:

Originally Posted by Vegas Long Legs

Lori - you contracted with one company for 5 years or had many different gigs over the 5 years?

Many different gigs over the 5 years. Only one of them was 1099, the rest were W2.

Zophie · Jul 2nd, 2008, 03:26 AM

I'm an IC. There are guidelines set by the IRS for what falls under an IC status.

Basically, my best advice is to always set aside at least 30% of your income for taxes and try not to get behind on your quarterly payments. You'll need to send in an estimate every quarter for your taxes.

Health insurance can be a bitch to get because now you'll have to be individually underwritten, which can be difficult. I actually didn't have insurance for a while and finally got a policy but they put a rider on my preexisting conditions.

Elara · Jul 2nd, 2008, 04:06 PM

My husband is an IC. We put 30+% of each paycheck he gets right into our ING savings account, and then pay quarterly taxes on it. Luckily, I've got us covered for health insurance, etc. So far, it's working well for him- it's just hard seeing all that money going away as soon as we get it. I think we may consider doing the lump sum at the end of the year next year, however, as we realized the other day we're missing out on a lot of money in interest we could be earning.

meluvs2shop · Jul 2nd, 2008, 05:27 PM

I'm an IC as well. I think the ladies above gave you some great advise. I would also put some money aside for retirement.

LeeMiller · Jul 2nd, 2008, 06:20 PM

I would find a good accountant to help you figure out what you'll actually take home asap. I know of someone who is setting something like this up b/c he'd rather put more money in his retirement account, so he has a LLC, but I don't know if you need most of your paycheck it might not be that great of a deal. SS taxes and benefits could eat up that 20k difference.

Jun 30th, 2008, 02:27 PM	#1
sjunky13 send cash!!! Joined: Dec 2006 Location: really out there man! Posts: 5,454	Is anyone here an independent contractor? Help please! I am about to accept a job that will hire me as an independent, meaning no health care, no taxes taken out, no 401k, I will be getting about 20 k more a year than my previous job, the new job has much more responsibiliies and 80 percent travel. After 3 months I get a 6.5 percent raise. I am nervous as this is a big change for me. I am scared of being independent, any have any advice? Please excuse my grammar and spelling, I havent slept in 2 days

Jun 30th, 2008, 02:59 PM	#4
UK2ME Go on, I dare ya! Joined: Mar 2008 Location: Maine Posts: 507	My husband plays in a band as an IC. When he was substantial money from it, he set himself up as an S-Corporation. Now he's not earning the bulk of his money from it, it cost more to maintain the S-Corp than it was worth. Although I'm not a US Citizen and the whole tax thing is pretty odd to me anyway, the one piece of advice I can give you from our experience is to get a good accountant, not just a H&R Block. That, and keep all your receipts. __________________ *Wear clean knickers!* (As my mother always told me, you just never know when you'll be run over by a bus.)

Jun 30th, 2008, 04:55 PM	#9
Vegas Long Legs Member Joined: Nov 2006 Location: Las Vegas Posts: 3,434	Lori - you contracted with one company for 5 years or had many different gigs over the 5 years? Red - My DH claims what it boils down to if a "job" tells you when you have to work (like 8-5 M-F) its not a 1099 situation. Is that true? __________________ Planning next voyage! Oct/Nov '08

Jul 1st, 2008, 05:26 PM	#10
redney Lovin' Life! Joined: Apr 2006 Posts: 3,779	^^According to the IRS (http://www.irs.gov/businesses/small/...=99921,00.html) 3 criteria are used to legally distinguish between an Independent Contractor (1099) and employee (W-2): 1. Behavioral (does the company control when and where someone works, training, and equipment used on job) 2. Financial (who determines payment, reimbursable expenses and opportunity for profit/loss) 3. Type of relationship (duration, expected to continue, benefits and type of work performed - is it central to company's activities) There's also a form on the IRS site that you/your company can complete and submit to determine IC status or not. And then, from here: http://jobsearchtech.about.com/od/la...l/aa121800.htm it states: "Companies don't have to withhold federal, state and Social Security (FICA) taxes, or pay unemployment or workers' compensation insurance for independent contractors. They also don't need to offer benefits like paid sick leave, vacation, health insurance and stock options, as they do to attract and retain employees. In fact, companies don't have to offer much of anything to independent contractors, except that for which they've agreed by contract.independent contractor agreement[/url]). That saves tons of paperwork and big bucks, giving dishonest companies lots of incentive to cheat independent contractors of their rights. The cheaters (and naive) misclassify workers as independent contractors, but still attempt to control them as employees. In doing so, they reap the benefits of both worlds, while depriving independent contractors of the very reason they became independent contractors in the first place: to be their own bosses. Many misclassified independent contractors don't fully understand the difference either, which helps to perpetuate the problem. Here's how it's supposed to work when you are correctly classified as an independent contractor: · Companies are not your employers per se, but your clients. As such, they are not entitled to direct you in your work. · Of course, your clients have a right to say what they expect for the rates they're paying you, but only as it relates to the outcome of the project. · It's your right to decide when, where and how to get the project done. " Last edited by redney; Jul 1st, 2008 at 05:33 PM.

Jul 2nd, 2008, 03:26 AM	#12
Zophie I <3 my Maltese! Joined: Feb 2007 Location: New Orleans, LA Posts: 6,922	I'm an IC. There are guidelines set by the IRS for what falls under an IC status. Basically, my best advice is to always set aside at least 30% of your income for taxes and try not to get behind on your quarterly payments. You'll need to send in an estimate every quarter for your taxes. Health insurance can be a bitch to get because now you'll have to be individually underwritten, which can be difficult. I actually didn't have insurance for a while and finally got a policy but they put a rider on my preexisting conditions. __________________

Jun 30th, 2008, 02:45 PM	#2
redney Lovin' Life! Joined: Apr 2006 Posts: 3,779	Congratulations on your IC (also known as a 1099) gig! I'm assuming you are in the US - if so, please make yourself aware of US employment and tax laws and obligations. Here are some good sites to start: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html http://jobsearchtech.about.com/od/laborlaws/l/aa121800.htm Please also read the links on these sites. One of the biggest changes you'll experience is that YOU are responsible for paying all of your federal and state income taxes and other employee withholdings, instead of an employer deducting these from a paycheck each pay period. This can be a very large financial hit if you're not used to it. Most ICs I know pay estimated taxes quarterly to offset the possibility of a huge lump sum at the end of the year. Depending on your financial arrangement, you may also need to invoice the company for your services (are you fixed-fee or time and materials?) on a regular basis and collect payments in a timely manner. Depending on the company's employees who are supposed to pay your invoices, you may also find yourself following up to ensure you are paid on a regular basis. For healthcare coverage, you may wish to purchase an individual plan from a major insurer. You can Google to find options. Good luck!!

Jun 30th, 2008, 02:53 PM	#3
sjunky13 send cash!!! Joined: Dec 2006 Location: really out there man! Posts: 5,454	Thanks for responding, what is so strange is I get an anual salary. I get expenses. They do this so they do not have to pay health coverage and unemployment tax...ect. That is why my salary is higher, they have no out of cost. I will have to find a great accountant. I also may become an llc. It seems like a lot of money, but then again, those taxes!

Jun 30th, 2008, 04:09 PM	#7
sjunky13 send cash!!! Joined: Dec 2006 Location: really out there man! Posts: 5,454	It is a legit company . Any links to where I can find these labor laws, now I am nervous.

Jun 30th, 2008, 04:29 PM	#8
lorihmatthews Luv my Persian Joined: Oct 2006 Location: San Francisco Posts: 6,663	I contracted for 5 years before moving into my permanent gig last year. Most of the contracts I had were W2 (taxes taken out) but I did have one that was 1099. Make sure that you put enough aside for taxes next year. In fact, put aside MORE than you think you'll need. My accountant told me to put aside 40-50% of my pay and I should have made sure that I had 50%+ put aside. It was no fun paying tax on that money. Also make sure that you set yourself up with a good health insurance plan. Are they providing you with any vacation days or will it be no work, no pay? That can be a pretty big chunk.

Jul 2nd, 2008, 04:06 PM	#13
Elara Member Joined: Aug 2007 Location: Richmond, VA Posts: 858	My husband is an IC. We put 30+% of each paycheck he gets right into our ING savings account, and then pay quarterly taxes on it. Luckily, I've got us covered for health insurance, etc. So far, it's working well for him- it's just hard seeing all that money going away as soon as we get it. I think we may consider doing the lump sum at the end of the year next year, however, as we realized the other day we're missing out on a lot of money in interest we could be earning.

Jul 2nd, 2008, 05:27 PM	#14
meluvs2shop mi isla Joined: Jul 2007 Posts: 1,387	I'm an IC as well. I think the ladies above gave you some great advise. I would also put some money aside for retirement.

Jul 2nd, 2008, 06:20 PM	#15
LeeMiller Member Joined: Jun 2007 Posts: 1,891	I would find a good accountant to help you figure out what you'll actually take home asap. I know of someone who is setting something like this up b/c he'd rather put more money in his retirement account, so he has a LLC, but I don't know if you need most of your paycheck it might not be that great of a deal. SS taxes and benefits could eat up that 20k difference.