How to factor in independent contractor status when comparing jobs?

[Gamergirl]

When comparing jobs - how did you factor independent contractor status into the salary?

I realize that it is going to depend on how expensive you are to insure - but even independent of that - is there a way to estimate what the tax burden difference is going to be?

For example is an employee job paying 300 k equivalent to an independent contract job at 350k?

Thanks in advance

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[Brigade4Radiant]

It depends on the job W2 vs Independent contractor shouldn't mean much if you like one job over the other. However between two similar jobs IC needs to pay more due to IC paying more taxes and not having benefits. You will need to file taxes quarterly as an IC and you also have to pay for health insurance. The pluses are that you can deduct your 401k and health expenses from your taxes. You usually have better retirement plans as an IC and more choices for health insurance (though for EM physicians the discounted insurance is mostly HDHP.)

 

[deleted547339]

When comparing jobs - how did you factor independent contractor status into the salary?

I realize that it is going to depend on how expensive you are to insure - but even independent of that - is there a way to estimate what the tax burden difference is going to be?

For example is an employee job paying 300 k equivalent to an independent contract job at 350k?

Thanks in advance

White coat investor has a podcast on this topic.

 

[southerndoc]

How do you get that IC's pay more taxes? You can write off more as an IC and should therefore pay less taxes. This is particularly true if you incorporate and pay yourself dividends on top of your salary (less FICA taxes).

 

[deleted547339]

How do you get that IC's pay more taxes? You can write off more as an IC and should therefore pay less taxes. This is particularly true if you incorporate and pay yourself dividends on top of your salary (less FICA taxes).

Is that legal/ethical if you are strictly a salary generating employee? I get it if you do a job that generates multiples streams of income (e.g. Seeing patients, selling a product, equipment fees, etc), but if you just see patients?

 

[GeneralVeers]

Is that legal/ethical if you are strictly a salary generating employee? I get it if you do a job that generates multiples streams of income (e.g. Seeing patients, selling a product, equipment fees, etc), but if you just see patients?

It is completelu ethical. The asvertised median Emergency physician salry is 240K. I pay myself that as W2 and the rest is dividend. As long as you don't pay yoursled less than what is considered reasonable the IRS won't care.

 

[emergentmd]

It is completelu ethical. The asvertised median Emergency physician salry is 240K. I pay myself that as W2 and the rest is dividend. As long as you don't pay yoursled less than what is considered reasonable the IRS won't care.

Very interesting and never thought of that. I am LLC on IC Er work and LLC on Freestanding distributions.

Can you do this through an LLC or do you need a C/S Corp? I assume you pay dividends over the 240K IC but can you do that via distributions too?

Also, if you have to have a C or S corp, is it too late to convert for this yr taxes and distribute?

 

[deleted547339]

It is completelu ethical. The asvertised median Emergency physician salry is 240K. I pay myself that as W2 and the rest is dividend. As long as you don't pay yoursled less than what is considered reasonable the IRS won't care.

Interesting. And you tax guy says this is kosher?

 

[NinerNiner999]

Completely kosher. It also depends how you structure your cooperation (i.e. what services you provide). The president of a Staffing company will have a much lower IRS expected income than a physician. Its completely acceptable for a staffing company (your company) to contract with your group and pay your salary as the president...

 

[The White Coat Investor]

Two relevant posts on the topic:

W2 vs Self-employed for the OP (Bottom line, make sure you get 10%+ more as an IC)
How Much Should You Pay Yourself As Salary? for the S Corp issues (bottom line, yea, it's legal, but choose your salary wisely and realize your salary has an effect on your retirement contributions)

I'm doing an S corp for WCI, LLC this year for the first time, feel free to follow along.
LLC Filing Taxes As An S Corp (bottom line, it makes sense for us because a huge chunk of our income won't be "salary."