Question re self employment/independent contractors & taxes

I have a question for those who are self employed or considered independent contractors. What is the tax rate like?

I was recently laid off & have the opportunity to join some co-workers at a new firm. They would pay me as an independent contractor and I would be responsible for payment of taxes on my own. I have read many conflicting things about this - ie., its better or its worse and wanted to get some input from those who are in this situation.

Given the current state of the economy I am tempted to take any job offer but need to make sure its fiscally responsible first.

thank you.

Re: Question re self employment/independent contractors & taxes

I am not sure what % we end up paying but...

you can write off a lot more as a 1099 independent contactor

Re: Question re self employment/independent contractors & taxes

You would pay self-employment tax (SE tax). SE tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.

I believe the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

You will also need to pay State tax but I'm not sure of the rate. I want to say it is around 7%.

I work as independent contractor and it has been great. No problems come tax time except owing money because I don't make estimated payments.

Re: Question re self employment/independent contractors & taxes

I am not a self-employed individual but I am a CPA specializing in tax.

There are many items to consider about in this type of employment situation.


Pros

1. You can reduce your income by deducting business expenses related to that income that you would not normally be able to deduct as an employee.

Cons

1. Your net income (income less expenses) you have to pay FICA tax on. For an self-employed individual you need to pay the employer and employee share. The self-employment rate is 15.3%. In addition to that you will pay Federal and State income tax. That rate depends on how much you make. The Federal rates are 10%, 15%. 25%, 33% and 35% for 2008. It's almost a definite that the next president is going to raise those rates in 2009.

2. You are not covered under workman's comp. If you are injured on the job then it's not the company's responsiblity to cover you. However, you can purchase your own insurance.

I would talk to your accountant about before making any decsions.

Message edited 11/18/2008 8:44:50 PM.