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1099 Vs. W-2 New Jersey

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  • 1099 Vs. W-2 New Jersey

    Redacted
    Last edited by Pineapple1; 12-09-2010, 04:29 AM. Reason: Privacy

  • #2
    Originally posted by Pineapple1 View Post
    I am currently employed as a W-2 employee earning 65K a year. Recently, my employer has offered to switch my status to a 1099 independent sub contractor at a rate of 52K a year.

    My employer is stating that, despite a lower "salary" ($52K), I would be able to write off all of my expenses - thus earning the same amount as if I were a W-2 ($65K). Of course, I'm skeptical of this. I know NOTHING about taxes or tax law but somehow don't see the benefit in this unless I'm writing off $13K in business expenses!!!

    So, to make things simple, I have the option of either:

    A) $65K/year as a W-2
    B) $52K/year as a 1099

    What would you choose and why?

    Thank you!
    I would choose the 65k per year as a W2.

    1) Right now your employer is required to pay 1/2 of the social security and medicare taxes associated with your pay (and 1/2 is withheld from your pay). If you become a self employed contractor, you are responsible for the
    entire amount. On top of that your employer would no longer have to provide the required workman's comp insurance, you would not be able to collect unemployment if you are laid off, and you would not be eligible for any company benefits.

    I would never accept to switch from an employee to an independent contractor unless my pay was being significantly INCREASED.

    2) If you have out of pocket expenses associated with your employment, you can deduct those anyway if you itemize deductions.

    Your employers is NOT offering you a good deal at all. Your employer is trying to significantly reduce his expense of employing you....AND to reduce your pay to boot. On top of that its probably illegal as heck, because I seriously doubt that the work that you do legally qualifies as self employment.

    It also may be a sign that your employer is in financial trouble, so you may need to be looking for another job.
    Last edited by LdiJ; 08-16-2009, 02:06 AM.

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    • #3
      Redacted
      Last edited by Pineapple1; 12-09-2010, 04:29 AM. Reason: Privacy

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      • #4
        Redacted
        Last edited by Pineapple1; 12-09-2010, 04:29 AM. Reason: Privacy

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        • #5
          Originally posted by Pineapple1 View Post
          Thank you for your very thorough and clear answer. This pretty much settles things - though I'm disturbed at what is either A) my employer's utter ignorance of the tax system or B) that they believe I am naive enough to subscribe to such a plan.

          This all came up while negotiating a raise. They brought up a lot of points that made it sound like this would be a good idea. For instance, they suggested that I could "write off expensive dinners and vacations with my girlfriend" as a business expense. I'd rather not have to plan that game.

          They also stated that I would NOT be responsible for the "second half" of Social Security, and that I'd only be paying roughly %7.XX. However, based on your answer, this is incorrect. They went far as to say that I could choose to only pay 3% if I wanted, since Social Security is based off my last 10 years of work experience - it would never affect me in the long run. This didn't, and still doesn't, make any sense!!! Since the money you pay into SS isn't for yourself - it's for your parents!

          As you mentioned, I doubt working as a subcontractor would be legal anyway. I've looked into the requirements (SS-8 form) and hardly meet any of them. All of the typical expenses a normal contractor would incur are - and will continue to be - handled by my employer. These include office space, computers, internet connection, phone, fax, UPS/FedEx, software, etc. Nothing is functionally changing, only my status.

          Thank you again for your clear response. I'd still like to get some more feedback just so that I clearly state my reason for declining their offer. I'm sure they'll have reasons why I should go with the 1099 and I'd like to refute them immediately. Also, they've already done this with 90% of the rest of the company (at this point I realize this is completely illegal) - and claim that the one's who didn't choose their option "just weren't smart enough to get it". Again, I don't know if they've got themselves convinced that they are right, or if they just think I'm naive. Either way, I'm not falling for it!

          Thanks,
          They flat out lied to you about the social security and they encouraged you to commit tax fraud by suggesting that you could write off dinners and vacations.

          Simply tell them that after discussing it with your tax advisor, that you prefer to remain a W2 employee. Don't get into a big discussion about it....and start looking for another job. They may not be in business much longer. Either they are having problems, or the IRS is going to catch up with them and they will be in serious hot water.

          As soon as some of those employees who "took the deal" do their tax returns, there is going to be some serious noise being made and I can just about bet that at least one of them will report it to the IRS.

          Comment


          • #6
            I suggest you also read this. It's not likely that you even meet the criteria for IC status.
            http://www.irs.gov/pub/irs-pdf/p1779.pdf
            I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.

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            • #7
              Wow! Thank you for this! This is a lot more user friendly then the SS-8 form I had been planning on showing them. Thanks again.

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              • #8
                Originally posted by Pineapple1 View Post
                Wow! Thank you for this! This is a lot more user friendly then the SS-8 form I had been planning on showing them. Thanks again.
                Another thing that you can do, is you could use online software to redo your 2008 return using 52k in self employment income, and then compare it to your real 2008 return. Or go to a local tax professional and ask them to run the numbers for you to show you the difference.

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                • #9
                  Redacted
                  Last edited by Pineapple1; 12-09-2010, 04:32 AM. Reason: Privacy

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                  • #10
                    I'd be looking for a new job. These guys are trying to scam you.
                    I am not an attorney, and don't play one on TV. Any information given is a description only and should be verified by your attorney.

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                    • #11
                      Redacted
                      Last edited by Pineapple1; 12-09-2010, 04:32 AM. Reason: Privacy

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                      • #12
                        You can start with IRS publication 15, the federal employers tax guide. That lists the rules for employers, including the withholding rules. Past that, the actual law starts with Internal Revenue Code section 3101 if you feel like getting your hands dirty.

                        Of course, you already know your employer is trying to use the "we sprinkled magic fairy dust on the worker so that they are no longer an employee any more" defense. You have already gotten the IRS cite on worker classification that says this is incorrect. But if the employer is bent, and yours seems to be, they can make up new stories faster then you can refute the stories.

                        Finding cites only works if the employer actually cares what the law is. I am skeptical that your employer does. You can file a form SS-8 form with IRS if your employer tries to force this on you, but IRS is not exactly going to send the BatMobile over the next day. You are looking at months (or years) for IRS to respond. People say that IRS is stepping up enforcement on this sort of thing. Maybe so, but IRS has been saying that for at least 30 years, and the problem is much worse now then it was 30 years ago. If IRS says enforcement is up, I believe them, but the number of employers engaged in the practice and not getting caught also seems to be up. I suspect that employers do this sort of thing because most of the time the employer gets away with it.

                        At some point the only real cure for a bent employer is to be somewhere else.
                        "Reality is that which, when you stop believing in it, doesn't go away".
                        Philip K. **** (1928-1982)

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                        • #13
                          Redacted
                          Last edited by Pineapple1; 12-09-2010, 04:33 AM. Reason: Privacy

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                          • #14
                            Originally posted by Pineapple1 View Post
                            Thanks to everyone who has offered their valuable input! Last week I sent a formal response to my bosses (two partners) that I wished to continue my employment as a W2 employee only. I did not get into specifics.


                            After sending this email, one of my bosses decided to speak with me about it. He again tried to convince me that I'd be making a mistake. That $52 as a 1099 would be such a better deal. I explained that I had done a good deal of research, and felt pretty confident in my decision. I started to explain how a 1099 is reponsible for both the employee and the employer half of SS/Medicare. At which point, he stated something that I had never heard before.

                            According to my boss, SS and Medicare taxes are OPTIONAL?!?! He claims that since SS benefits are based off you last 10 years of employment (is this true?) than it doesn't make sense to pay into it now. And that doing so is completely optional. This doesn't sound right either!!!! Is this true?
                            Thanks again guys!
                            In no way, shape or form are SS and Medicare taxes OPTIONAL. That is a flat out lie. Even the most ignorant of employers would know that's not true.
                            Last edited by LdiJ; 08-25-2009, 03:13 AM.

                            Comment

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