How much more does it cost you per year to be an independent contractor? I know that no exact figures can be given, but take for example a job where you make 320k per year as an employee with all benefits paid versus 400K per year as an independant? In an area with an average malpractice rate.

Any ideas on how much it really costs per year to be and IC? My guess is 50-80k but any help is appreciated. :)

Some benefits can only be had in a group of enough numbers of employees.


Malpractice can be cheaper.
Health insurance can be cheaper.
Disability insurance can be cheaper.
Healths Savings Accounts

It is difficult to compare which way is better.

How much more does it cost you per year to be an independent contractor? I know that no exact figures can be given, but take for example a job where you make 320k per year as an employee with all benefits paid versus 400K per year as an independant? In an area with an average malpractice rate.

Any ideas on how much it really costs per year to be and IC? My guess is 50-80k but any help is appreciated. :)

The official determination of being an employee is receiving a W-2 at the end of the year. Independent contractors receive a form 1099. Anything else is just words - the W-2 versus 1099 is the only determinant used by the IRS.

I've been both, and here's a basic comparison. You might want to consult with a CPA or attorney to get more detailed specifics applicable to your home state.

Benefits of being an employee:

-- generally, all your non-paycheck compensation is provided by employer, including all the insurances (malpractice, health, life, disability, etc), and they might match your contributions to a retirement plan.

-- the employer will probably do the billing, relieving you of this potential headache.

-- most employees get a guaranteed base salary, plus extras.

-- by law, employer pays 1/2 of your social security tax.

-- in a period of fiscal shorfalls, generally independent contractors are let go earlier, while employees are kept.

Pros/cons of being an independent contractor:

-- you pay both halves of the social security tax.

-- you fund all your associated expenses (malpractice, insurances, retirement).

-- the portion of the IRS tax code dealing with retirement plans is much more generous towards contractors regarding tax-deferred contributions with higher limits. Much, much higher limits.

-- you can incorporate as an "S" corporation, work for yourself/your corporation, and theoretically gain a level of protection if you're sued. Only the corporate assets can be lost, not your personal assets, if you lose in court and the award exceeds the limits of your malpractice policy. In theory.

-- you have much easier deductibility of associated expenses from your income tax. They go on a Schedule C, and those expenses directly reduce your taxable income dollar-for-dollar. In comparison, employees must deduct those unreimbursed expenses on a Form 2106, which feeds onto Schedule A, and you lose the portion equal to 2% of your adjusted gross income. What a byzantine system.

-- you might have to do (or contract out) your billing.