Watch the 21 minute lecture video in this Excel and study this comparison of the cost of a W2 employee to the employer and the W2 employee's expenses and benefits versus the cost of a 1099 independent contractor to an employer and the contractor's net pay and benefits. (You should have watched this video already provided in the payroll register assignment. Skip if you have.
Assignment: Essay question: If you were offered a position with a company which would allow you to take the position as either a W2 employee or an independent contractor as a 'consultant' explain which one you would choose under these circumstances and why:
The job pays $100,000 per year paid monthly. One month vacation for both 1099 & W2. Job stability is equal regardless of which option you choose. No other benefits beyond what is required by Federal Law. You are in the 25% income tax bracket. You have to commute fifty miles to the employer's workplace (travel costs on you) and you must do so every day Monday thru Friday to get water samples needed to do your job. As a W2 employee you will have to share laboratory space with a real nerd who you don't like working with. You have a similar lab in your basement. You are a control freak and don't like being told how to do things and when to do them.
At least once a week you have to travel to the client sites (employer paid travel) which are in the deep jungle and the chances of injury and contracting diseases transmitted by mosquitoes are a concern. Ten percent of prior employees have died or been permanently disabled from these health threats. Its a dangerous and exciting job and you have a talent and passion for it. Your accomplishments will be published in the press. Your demise or injury pursuing cures for mankind will also be published.
You are married, have three kids four, six and eight years old. You have a stay at home spouse who relies on you to bring home the bacon. Your highest priority is to provide for them. You will subordinate your lust for fame, glory and adventure found in your professional nitch and your aversion to being 'controlled' by others and even working with people you detest in order to provide for your family... if need be.
This job will require all of your time available to work. Even as an independent contractor you won't have time to take on any other contracts.
Your health insurance like all personal health insurance does not cover you for injuries or illnesses incurred while working. You don't have life or disability insurance. The employer provides no health benefits except those required by law. Assume you aren't able to acquire any insurance as an independent contractor to replace employer provided L&I and unemployment (though that is pausable as a high cost). Also, you aren't taking a 'home office' tax deduction for the lab in the basement because that flags you for an audit.
Assignment:
1. Identify the best choice between W2 and 1099 based on the above conditions and priorities. (Only one correct answer.) Explain your choice by explaining the most significant 'decision making' benefits of one over the other that apply to this job situation in the context of your given priorities and circumstances. Where a benefit or expense has a dollar value provide the amount involved and how it is calculated. Identify the savings in dollar amounts related to Social Security, Medicare and federal income taxes of W2 versus 1099.
This should be in a narrative written format with good grammar and sentence structure. This is an Essay question. Write your essay from the perspective of the person defined above, not your personal perspective.
Prepare your submission in Word. Save File name as:
Lname, Fname 1099 vs W2 and 'submit' here.
Be sure to review the correct and complete sample essay provided in #3 above.
1 Clearly answered the question of which choice between W2 and 1099
2 Chose or implied the correct answer.
3 Proper English, paragraph and sentence structure, made sense, not rambling.
4 Provided a complete discussion of the primary issues (listed below) regardless of choice made.
5 Blank
6 Compares issues related to federally required withholding from employees versus contractors and the %'s and amounts involved.
7 Calculated the exact cost savings related to social security
8 Explains the types of benefits an employee has that an independent contractor doesn't related to injury and accidental death.
9 Addresses other benefits of being an employee over being a 1099 contractor.
10 Explains the benefits/privilages/freedoms an independent contractor has that a W2 employee doesn't
11 Give numeric calculations of tax savings that an independent contractor has that a W2 employee doesn't.
12 Address how the issues related to the miliage tax deduction driving to work versus the weekly trip to the jungle.
13 Total points available for W2 vs 1099 Essay