1099 vs W2--costs to the employer

[katmandu]

Are there costs to the employer for a 1099 over those of a W2?

In my understanding, 1099 salary should be higher than W2 salary due to the employee covering additional taxes. However, a company in my area is offering a higher W2 salary than 1099. Is there some additional cost or inconvenience to the company in doing 1099? Just trying to make sense of it....

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[bravotwozero]

You mean to say you're making MORE on a W2 after tax income than a 1099 pre tax? That's significant. It's more convenient for an employer to pay 1099, since 1) they don't have to pay taxes on your behalf and 2) they don't have to pay you any benefits.

If all else is equal, I'd take the w2 position if what you're saying is true...


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[deleted109597]

However, a company in my area is offering a higher W2 salary than 1099. Is there some additional cost or inconvenience to the company in doing 1099? Just trying to make sense of it....

For the same job? Are they advertising the option to do either one? (ESP used to do this, no idea if they do now that they're USACS).
But, in general, no. There's a reason every CMG uses 1099, and it's not because it costs them money.

 

[HooliganSnail]

While there are some benefits to being a 1099, the finer points of which I will leave to others to explain, pound for pound, the W2 pays you more.

You have to make an extra $20-30/hr as a 1099 to equal a W2 rate.

I am unaware of any extra cost associated to the employer by granting 1099, in fact it seems to save them money (that's why most places do 1099)

 

[bravotwozero]

You have to make an extra $20-30/hr as a 1099 to equal a W2 rate.

...except plenty of 1099 gigs will pay you that sum. Compared to the local CMG in my area that has w2 positions, I'm making almost $100/hr more as a 1099.




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[d2305]

If the hospital or group dictate your working hours, you can't be issued a 1099. I'm no CPA, however.

 

[bravotwozero]

'Dictate' is a vague term. At my shop we all submit schedule requests and are able to specify how many shifts a month we would like to work.

The only thing the employer mandates is how many hours per month qualify as full vs part time. Does that constitute 'dictating working hours?' Most EDs have similar scheduling setups.


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[deleted109597]

Yeah, the legalities are real, but the good news is that the fines will go to the CMGs, not to the doc. You don't choose your tax designation, they do.
I agree that this isn't the real intent of 1099 pay, but we aren't in control of it.

 

[DissocativFugue]

I'm full time 1099 and max out a solo 401K. If I were to work at another place like an FSED and it was 1099 would I be able to start another corporation and then do a new solo 401k with 54k max?


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[BoardingDoc]

I'm full time 1099 and max out a solo 401K. If I were to work at another place like an FSED and it was 1099 would I be able to start another corporation and then do a new solo 401k with 54k max?


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I don't believe so. Both corps would be considered part of the same controlled group, and as such, you would only have access to one retirement account.

If you work at one place that gives you a 401k + match/contribution/whatever and then you work as a 1099 employee and setup a SEP on the side, you could contribute 54k to both.

 

[GeneralVeers]

There is an advantage to a company paying W2. If you are paid $320/hr as 1099 versus $300/hr as W2, then the employer benefits. They get to deduct the employer portion of taxes as a "business expense".

 

[bravotwozero]

I'm not sure about that. I'm incorporated solo LLC who pays employer and employee taxes, but I don't get to deduct the employer portion of the taxes - aside from the Medicare portion that I don't have to pay. I don't see why it would be different for any other employer...


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[deleted547339]

So about $20/h is the general consensus on cost of benefits to a family for health insurance, vision, dental, etc? Even if the employer provides it, I plan to supplement with my own term life and disability (which I already have and am happy with).

I've looked at a couple jobs with both pay schemes and am trying to better compare apples to apples.

Thanks guys.

 

[shoal007]

So about $20/h is the general consensus on cost of benefits to a family for health insurance, vision, dental, etc? Even if the employer provides it, I plan to supplement with my own term life and disability (which I already have and am happy with).

I've looked at a couple jobs with both pay schemes and am trying to better compare apples to apples.

Thanks guys.

it depends. my family insurance cost to my work is 20k/yr. which equates between 10-20/hr. plus all the other worker benefits (med mal, 401k match, pension, life insurance, disability insurance) easily another 40k.

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[deleted109597]

Med mal doesn't count. There isn't a job in existence that doesn't provide it. Some allow you to have your own and give you $20/hr more.
401k match is low, but not zero, I'll give you that.
Life, disability? I haven't seen a job give that. Sure, they might exist, but so do unicorns.
There are situations in which being W2 is better than 1099. The converse also exists. Most, if not all of these do not exist in same location.

 

[deleted547339]

Med mal doesn't count. There isn't a job in existence that doesn't provide it. Some allow you to have your own and give you $20/hr more.
401k match is low, but not zero, I'll give you that.
Life, disability? I haven't seen a job give that. Sure, they might exist, but so do unicorns.
There are situations in which being W2 is better than 1099. The converse also exists. Most, if not all of these do not exist in same location.

I know one of the academic programs I looked at provides disability and life, but it may be poor coverage, I haven't looked into it.

 

[shoal007]

Med mal doesn't count. There isn't a job in existence that doesn't provide it. Some allow you to have your own and give you $20/hr more.
401k match is low, but not zero, I'll give you that.
Life, disability? I haven't seen a job give that. Sure, they might exist, but so do unicorns.
There are situations in which being W2 is better than 1099. The converse also exists. Most, if not all of these do not exist in same location.

i guess im in a unicorn job. i get all the above. disability through my employer is better than my own. own occupation, no waiting period, 50+% of normal salary.

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[NinerNiner999]

There are many different structures for 1099 income, and by far creating a corporation as a passthrough is the most effective. In that scenario, your accountant can determine what your annual salary would be, the amount of payroll tax would only be applied to that fixed amount, and any additional income could be treated as a distribution. I disagree with the above post that $30/hr is the only difference between W2 and 1099 income. That happens to be an individual case, but I can assure you that is not the ideal case, and there are probably missed opportunities for that poster that they are not taking advantage of. Check with an accountant before you make any decisions between 1099 and W2. Maximizing 1099 income with a good business structure will ALWAYS come out on top.

 

[Raryn]

There are many different structures for 1099 income, and by far creating a corporation as a passthrough is the most effective. In that scenario, your accountant can determine what your annual salary would be, the amount of payroll tax would only be applied to that fixed amount, and any additional income could be treated as a distribution.

I'm not so sure that creating a passthrough corporation is by far the most effective. You're right in that you could potentially save payroll taxes... but the maximum income subject to the social security portion of the payroll tax (which makes up the largest chunk of it) is $127,200. If you are a full time attending physician and you pay yourself less than $127,200? That's flat-out fraud and you'll never survive an audit. You're required to pay yourself a reasonable salary. OTOH, if you just move income above the $127k limit to be a dividend, you do save yourself the 2.9% medicare tax.

I disagree with the above post that $30/hr is the only difference between W2 and 1099 income. That happens to be an individual case, but I can assure you that is not the ideal case, and there are probably missed opportunities for that poster that they are not taking advantage of. Check with an accountant before you make any decisions between 1099 and W2. Maximizing 1099 income with a good business structure will ALWAYS come out on top.

The remainder of the benefits of self-incorporation are more or less nonexistant. You can use a solo 401(k) without incorporating. You can deduct business expenses without incorporating (just need to fill out schedule C). You get no liability protection.

Basically it's a question of whether any hassles of self-incorporation is worth the 2.9% payroll tax on the proportion of your income that ends up being a dividend rather than salary. Tax savings are more or less a maximum of a few thousand a year.

 

[Old_Mil]

However, a company in my area is offering a higher W2 salary than 1099.

I've never heard of this. Things to ask:

1. Does the W2 salary come with benefits?

2. If so, who pays for those benefits? Are they actually a benefit, or does the facility simply payroll deduct your premiums from your paycheck? In the latter scenario, a 1099 situation may be better because then at least you get the payroll deduction for the benefits you receive.

 

[Old_Mil]

So about $20/h is the general consensus on cost of benefits to a family for health insurance, vision, dental, etc? Even if the employer provides it, I plan to supplement with my own term life and disability (which I already have and am happy with).

I've looked at a couple jobs with both pay schemes and am trying to better compare apples to apples.

Thanks guys.

It was several years ago. With the steady rise in deductibles and health insurance premiums with "reform" it's probably closer to 30.

I work with several guys who were considering retiring early. Their obamacare premiums to bridge to medicare at age 65 were all over $3000 a month.

So much for early retirement.

 

[NinerNiner999]

I'm not so sure that creating a passthrough corporation is by far the most effective. You're right in that you could potentially save payroll taxes... but the maximum income subject to the social security portion of the payroll tax (which makes up the largest chunk of it) is $127,200. If you are a full time attending physician and you pay yourself less than $127,200? That's flat-out fraud and you'll never survive an audit. You're required to pay yourself a reasonable salary. OTOH, if you just move income above the $127k limit to be a dividend, you do save yourself the 2.9% medicare tax.

The remainder of the benefits of self-incorporation are more or less nonexistant. You can use a solo 401(k) without incorporating. You can deduct business expenses without incorporating (just need to fill out schedule C). You get no liability protection.

Basically it's a question of whether any hassles of self-incorporation is worth the 2.9% payroll tax on the proportion of your income that ends up being a dividend rather than salary. Tax savings are more or less a maximum of a few thousand a year.

Under the assumption that your sole 1099 income is clinical income only, yes, reported less would be dicey. For those with additional non clinical income an accountant can recommend the best corporate structure and salary.

 

[BAM!]

How does a K1 factor into all of this? Would a K1 partnership be better than 1099?

 

[Raryn]

How does a K1 factor into all of this? Would a K1 partnership be better than 1099?

Tax-wise, it's treated more or less the same as a 1099.