w2 vs corp-to-corp - newbie questions
Submitted by Anonymous on Mon, 2008-02-11 21:33.
Hi Linda,
(sorry for the double-post - I posted this at the end of the "Consultants: W-2, 1099 or Corp-to-Corp?" thread)
I am new to the US (NYC) and don't understand the tax laws well. I have a green card.
I have been offered a contract through a recruitment agency. They have offered $58 per hour W2 or $60 corp-to-corp.
The duration of the contract is 6-12 months. I am single, no dependents, renting an apartment.
The recruitment agency says I can get their benefits after 90 days - medical @ $400-500 per month and 401K (no matching). I am not sure whether I will take these benefits (i.e. maybe I can get better medical elsewhere)
Is it worth incorporating? I am not sure whether I will have enough deductible expenses to justify the headache.
I also forgot to mention, I
I also forgot to mention, I am uncertain of the whole "independent contractor" status thing and whether it's relevant to me. I am consulting through a recruitment company, but I am spending my whole time working in the client's office - basically full-time. I am not sure whether that classifies me as an employee or independent contractor and how it's relevant to my W2 vs corp-to-corp decision.
Contracting w/a Green Card
Hi,
After this contract is over, are you likely to get a full-time job someplace else, or continue contracting? Are you planning to stay in the US?
If you're only planning on doing this for a short time, I would be reluctant to start a corporation as dissolving it can be cumbersome & depends on the state in which you incorporate.
I don't know the details of the NYC city & commuter taxes. You should look into those & see how they would impact your tax burden as a corp vs W2.
I wonder if it wouldn't be better to take the W-2 offer and get a better feel for the US tax system before you jump into the corporate tax world.
It's usually better to learn to swim in the shallow end of the pool!
L:)
thanks for the reply. yes,
thanks for the reply.
yes, I am planning on staying in the US. I don't know whether I'll get another contract or work full-time - depends on what I can find.
From reading your other post on W2 vs 1099 vs Corp to Corp, as C2C I will be paying double FICA taxes? Are these the NY taxes which you suggest I research? Bit confused about all the different taxes.
Commuter tax - not sure what this is. I don't own a car and will be commuting to work by subway.
"If you're only planning on doing this for a short time, I would be reluctant to start a corporation as dissolving it can be cumbersome & depends on the state in which you incorporate." - if I go C2C, does it cost much to keep it if it's doing nothing? (i.e. assuming I do W2 next year). Do I need to dissolve it?
I am actually sort of keen to learn more about C2C. My only caveat is that I don't want to burn myself by choosing C2C over W2 - as long as I make similar $$$$ at the end of the day, I don't mind trying C2C.
I am trying to find work out how many expenses I will need to deduct in order to justify the double FICA tax, accountant expenses, etc....
If I get private medical, is that deductible? As C2C, do I have 401K options?
Thanks again
Hello , You have fantastic
Hello ,
You have fantastic clarity of thought for a 'newbie'.
Here is my two cents:
When you incorporate you choose to be taxed as s-corp which would avoid double taxation.
If you are going to work all the time from client location I think that you may not be able to take business mileage .
But what I want to let you know is this :
On W-2 the employer would definitely pay FICA & FIMA which is 7.65% ( again it is only 1.45% after 97000 i think as FICA maxes out ). So for him to say that he will give you only 2$ more per hour is pure cheating. They then come up with - oh I have to pay the s-corp1099 set-up cost , insurance cost - All nonsense.
Like Linda pointed you might be better off taking W-2 , but consider this :
Ask for W-2 hourly with something like a 10-20$ per diem. This way , you can save all your meal receipts, travel receipts , internet usage receipts from home , phone etc etc and accumulate so mush pre tax dollars.
Now back to S Corp:
Your Private med insurance is deductible as an s-corp. And it is all pre-tax. And you will pay yourself part of the actual hourly rate as W-2 wage and so save on FICA & FIMA. You can opt for a SEP-IRA from vanguard or soem company and save pre-tax for retirment .
So , even at the end of the day , if you manage to make money from S-Corp, note some very fine points - when you do not have a job guess who pays your Unemployment insurance partly - your company . So, it is like double dipping I guess and not very lucrative.
Also, you will have to spend a few hundred dollars at least the first year when you start a corporation.
If I were you , I would consult with a IRS Registered agent or CPA ( we are talking expense dollars here ) and work out the details for the exact rates that you are looking. If you want to avoid all this hassle , get W-2 and when you are comfortable with all this , then convert to 1099 - all the contracting companies allow you to change in the middle of the contract.
Good luck.
The commuter tax is when a
The commuter tax is when a city charges taxes on people who work, but do not live in the city. It doesn't have anything to do with transportation. ;) You need to include that in your calculation.
Ok. If you're willing to jump into the deep end, and you're willing to spend some time learning, then the corp to corp may save you some money.
First you should definitely make the S election to avoid the PSC flat 35% tax.
You can establish an HRA which allows the corp to reimburse you for the medical expenses. The premiums and your out-of-pocket costs.
You can establish either a Individual 401(k) or a SEP-IRA. These have a employer & employee paid components. The maximum contribution the company can make is based on the salary you take from the corp.
Since you will likely have a home office, you can have the company reimburse you for a portion of the expenses to run your home. This is based on the square footage of the office compared to that of your home.
Remember to include books, publication, seminars and other expenses you incur to improve and maintain your professional skills.
Some client require you have professional or business liability insurance. This is an expense you don't have to deal with if you're an employee.
Finally, yes you should dissolve your corp when you're finished contracting. There are tax returns and annual filing fees you'll incur for every year the corp is in existence. You definitely want to tidy everything up when you're done.
L:)
thanks linda and anonymous.
thanks linda and anonymous. this website is a great resource for someone in my position.
I am now more tempted to go W2, until I learn more about the vagaries of c2c. this is my first ever consulting gig (I was full time overseas). I am getting a bit put off by the complexity of c2c.
per diem - this is a new concept for me. if I ask for, say, 10per diem, is that an extra $10 per hour pre-tax? I am curious how this works and whether it's a popular vehicle for consultants to minimize their tax?
thanks again