1099 vs w2

[medicine2wallstreet]

How much more do you need to make in 1099 model to make up the difference of paying for all your benefits etc? I'm evaluating a new job option. Thanks

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[thinkorswim]

About $100-125k more, depending on your own personal situation. For most it will break down as follows:

$10.5k for employer portion of Social Security tax
$12.5k for Medicare tax (assuming $600k gross income)
$46k for employer 401k contribution (employee can contribue $23k for $69k total in 2024)
$24k for family health insurance
$10k for malpractice insurance
$2k for DEA and state medical licenses
$5k for a good accountant

Your gross taxable income can be lowered through business expense reimbursement, but that'll really only lower your Medicare tax payments from the above list. It also helps if your spouse can provide health insurance through their job. But you would still need about $100k more compared to W2 to account for full benefits.

 

[medicine2wallstreet]

That is amazingly helpful thank you so much. I figured it would at least be in the $50,000 range or more.

The two jobs I'm looking at is 525k W2 and the other one is 550k 1099. The 1099 is where I currently live and the W-2 is another city over.

 

[CubsDynasty]

Agree with above, but you need to break down the offers side by side. Some full time 1099 jobs will cover malpractice, DEA, licenses, while some W2 will not do an employer contribution to a 401k or it may be very small (while 1099 will allow you to max that out).

 

[GassYous]

Agree with above, but you need to break down the offers side by side. Some full time 1099 jobs will cover malpractice, DEA, licenses, while some W2 will not do an employer contribution to a 401k or it may be very small (while 1099 will allow you to max that out).

Or some w2s will let you do deductions through the company which is basically like a 1099

 

[dmk5n]

dont forget to calculate cost of commuting. 300/hr of your life as an expense. if you are traveling from one city to the next.

 

[aneftp]

If you are married and combined w2 income is less than 550k. Better off as w2 if it comes with generous state benefits like university job. Aka not an envision team health usap napa Northstar w2 job.

Just look at taxable brackets. Singles get killed with 20k extra in federal taxes (35% kicks in at around 225k) vs 460k married. If you are single. Think hard before taking any w2 job. Better to calculate and think you can make at least 500-600k over taking a 500-600k w2 job (even with benefits). Those benefits from the w2 job better outweigh the 25k plus in federal taxes you are exposed to as a single person at that w2 level

 

[medicine2wallstreet]

If you are married and combined w2 income is less than 550k. Better off as w2 if it comes with generous state benefits like university job. Aka not an envision team health usap napa Northstar w2 job.

Just look at taxable brackets. Singles get killed with 20k extra in federal taxes (35% kicks in at around 225k) vs 460k married. If you are single. Think hard before taking any w2 job. Better to calculate and think you can make at least 500-600k over taking a 500-600k w2 job (even with benefits). Those benefits from the w2 job better outweigh the 25k plus in federal taxes you are exposed to as a single person at that w2 level

This post made almost zero sense. But thanks.

 

[aneftp]

This post made almost zero sense. But thanks.

It makes a ton of sense

AMC pays u 500k w2 as single person
AMC pays u 500k w2 as married person (spouse doesn’t work) or makes teacher money

AMC pays you 500k 1099 no benefits options

The married w2 will save 20k in federal taxes as a w2 on same income. Look at the tax brackets.

So if you are single. Don’t take a w2 job at amc. That’s my take on things. Or if u have a spouse with access to great Healthcare. Don’t take the w2 amc job.

Unless the amc offers you something special like 20 weeks off at 500k you normally wouldn’t get elsewhere.

 

[medicine2wallstreet]

Yeah that's what I knew. That w2 saves taxes versus 1099. My original question was not that. It was how much more does 1099 need to be paid to equate to a lower salary W2.

 

[Nunchuk]

Agree with above posters generally speaking, but definitely do calculations per your own situation. I'm single and practice as 1099 in VHCOL area, but for me the difference in gross income needed was approximately only ~45-50K NOT including the employer 401K contribution... my current health insurance and liability premiums combined are only like 12k.

Additionally, the main benefit I am starting to see with 1099 is the option for a combo trust involving both a solo 401K plan as well as a defined benefit plan which allowed me to make far greater pre-tax retirement contributions than a W2 model would ever allow, somewhere in the ballpark of 155-160k combined annually, with potential for even higher as I age if I want to save aggressively. Have some colleagues who put 200k+ into these kinda pension plans. Reason I did not include the 46K employer 401k contribution for the max of 69K is that by maxing my DBP in the combo plan, only allows for 6% of max W2 income contribution by my employer (aka my S corp), so 401k is lower than the 69k max. Overall, my W2 taxable income I am paid by my S corp is quite lower than the gross 1099 earnings after accounting for the above contributions and deductions plus a few more, with some remaining $ in corporation.

Even after discussing with a reputed CPA and being conservative by not playing with any sketchy or aggressive deductions, going 1099 seemed a MUCH better financial setup for the LONG term for my income range in a state with high income tax burden, primarily by allowing for huge tax deferred retirement account growth.

So there's more to it than just the raw differences in gross salary #s that you may need to crunch with napkin math + financial advisor +/- CPA with your situation. With compounding interest and higher retirement contributions, 1099 may be the better way to go long term for those earning >500K despite the more complicated nature to set up initially, IMHO. That being said, getting a clean W2 slip with all benefits has merit too if you don't want to allocate this much time to thinking about your money/complex tax stuff.

I have heard there are some W2 groups that can make similar deductions and possibly contribute to DBPs through the group, which seems like a sweet setup as well, but this is not feasible to run with every group.

 

[aneftp]

Agree with above posters generally speaking, but definitely do calculations per your own situation. I'm single and practice as 1099 in VHCOL area, but for me the difference in gross income needed was approximately only ~45-50K NOT including the employer 401K contribution... my current health insurance and liability premiums combined are only like 12k.

Additionally, the main benefit I am starting to see with 1099 is the option for a combo option for a solo 401K plan as well as a defined benefit plan which allowed me to make far greater pre-tax retirement contributions than a W2 model would ever allow, somewhere in the ballpark of 155-160k combined annually, with potential for even higher as I age if I want to save aggressively. Have some colleagues who put 200k+ into these kinda pension plans. Reason I did not include the 46K employer 401k contribution for the max of 69K is that by maxing my DBP in the combo plan, only allows for 6% of max W2 income contribution by my employer (aka my S corp), so 401k is lower than the 69k max. Overall, my W2 taxable income I am paid by my S corp is quite lower than the gross 1099 earnings after accounting for the above contributions and deductions plus a few more, with some remaining $ in corporation.

Even after discussing with a reputed CPA and being conservative by not playing with any sketchy or aggressive deductions, going 1099 seemed a MUCH better financial setup for the LONG term for my income range in a state with high income tax burden, primarily by allowing for huge tax deferred retirement account growth.

So there's more to it than just the raw differences in gross salary #s that you may need to crunch with napkin math + financial advisor +/- CPA with your situation. With compounding interest and higher retirement contributions, I personally think 1099 may be the better way to go long term for those earning >500K despite the more complicated nature to set up initially, IMHO. That being said, getting a clean W2 slip with all benefits has merit too if you don't want to allocate this much time to thinking about your money.

I have heard there are some W2 groups that can make similar deductions and possibly contribute to DBPs through the group, which seems like a sweet setup as well, but this is not feasible to run with every group.

Nailed it.

For younger singles. I highly recommends 1099 if u income exceeds more than 400k

W2 does make sense for me 20 years out. I’m married. Have great benefits. Fortunate to be able to put away 70k plus at my current job plus the employer kicks in another 30k. That’s enough for me

If I worked for an amc for similar w2 salary. I would not work for them lol. I have never worked as a w2 for any amc. Though I told amc if they give me 26 weeks off for 500k. I’d highly consider taking that job. 10 min from the ocean.

 

[nimbus]

I have heard there are some W2 groups that can make similar deductions and possibly contribute to DBPs through the group, which seems like a sweet setup as well, but this is not feasible to run with every group.

This is true. You need enough motivated partners to set up a CBP in a W2 group.

The other thing about CBP is that they can only hold conservative assets. You can’t go wild with growth stocks like you can in a self directed 401k. Our CBP is 75% bond market index fund. In order to get close to an appropriate overall asset allocation (for CBP+401k combined), I don’t hold any bonds in my 401k.

 

[Simba1711]

Yes this is all true. I just wanted to add that if you leave the group you can transfer to 401k. Then you can invest in riskier assets. Also, if your group cbp plan allows after 3-5 years you can transfer to 401k. My group doesn’t allow transfer until you leave.

This is true. You need enough motivated partners to set up a CBP in a W2 group.

The other thing about CBP is that they can only hold conservative assets. You can’t go wild with growth stocks like you can in a self directed 401k. Our CBP is 75% bond market index fund. In order to get close to an appropriate overall asset allocation (for CBP+401k combined), I don’t hold any bonds in my 401k.

 

[medicine2wallstreet]

It makes a ton of sense

AMC pays u 500k w2 as single person
AMC pays u 500k w2 as married person (spouse doesn’t work) or makes teacher money

AMC pays you 500k 1099 no benefits options

The married w2 will save 20k in federal taxes as a w2 on same income. Look at the tax brackets.

So if you are single. Don’t take a w2 job at amc. That’s my take on things. Or if u have a spouse with access to great Healthcare. Don’t take the w2 amc job.

Unless the amc offers you something special like 20 weeks off at 500k you normally wouldn’t get elsewhere.

So essentially if my spouse doesn't plan to work w2 makes clearly the most sense.

 

[aneftp]

So essentially if my spouse doesn't plan to work w2 makes clearly the most sense.

If ur wife is only making 30-70k. It may not make much sense especially with child care issues.

But yes the tax code is designed for married couples making less than 450k agi (after deductions). Or $225k agi singles

 

[GassYous]

If ur wife is only making 30-70k. It may not make much sense especially with child care issues.

But yes the tax code is designed for married couples making less than 450k agi (after deductions). Or $225k agi singles

It's designed for millionaires who get paid through stock

 

[Coffee PRN]

It's designed for millionaires who get paid through stock

*Billionaires

Edit: I misread your comment as millennials instead of millionaires

 

[Nunchuk]

This is true. You need enough motivated partners to set up a CBP in a W2 group.

The other thing about CBP is that they can only hold conservative assets. You can’t go wild with growth stocks like you can in a self directed 401k. Our CBP is 75% bond market index fund. In order to get close to an appropriate overall asset allocation (for CBP+401k combined), I don’t hold any bonds in my 401k.

Generally speaking yes for group CBPs. But for solo CBPs, it is possible to invest in less conservative assets. Mine has decent amount of stocks and very similar to 401K with a plan to increase the bond:stock ratio over time.

I’ve heard for group CBPs, ballpark of ~60-75% of the group has to be willing to contribute to them which can be difficult to maintain in larger groups with the nature of mandatory contributions and being much more rigid than 401K which is not to everyone’s liking.