W-2 vs 1099 — company wants me to change
Hi Terry, I Iove watching you on WGN!
My employer wants to take me off of being a W2 employee to a 1099 employee. This is a first for me and i am a little concerned going this route. I’m aware that i will be reasonable for my taxes including the other half of FICA and unemployment insurance that the company pays on my W-2 currently. But not sure what this all really means and if its a good move for me. They are not offering me a pay increase to offset it either. I’m a widow with kids and already drowning in debt. I really do not want to put myself in a worse situation. I make $75,000.00 a year and they will be paying me weekly instead of by-weekly now. How much money out of each check will i have to put aside for taxes? Will i be able to deduct anything to offset it? Please HELP!! Thank you!
Terry Says
OK, this is a slap in the face from your company. As an ‘independent’ contractor versus an employee, they do not have to pay your health benefits, nor do they have to contribute to a retirement plan on your behalf, nor do they have to contribute to FICA (Social Security) for you (costing them 7.65% of your salary) in addition to the 7.65% that YOU already have deducted from your paycheck. And now you will have to pay the full 15.3%.
You don’t have to be a math genius to figure out this is a significant cut in pay, depending on how much your health insurance will cost you. (I think you might be above age 65 and on Medicare, but likely your work insurance acted as a secondary payer, and now you will need to pay for a Supplement and Part D.
So two things here. First, can you get another job? If so, it’s time to leave. Second, do you want to threaten your employer, saying there is plenty of law showing that if they move employees to independent contractors, they can be subject to an IRS review? (That’s true — but they could can you on the spot for that threat — unless you are older, in which case you can call it age discrimination and find a lawyer to sue them.) Either way, you could be out of a job!
So if you want to settle for this treatment and stay employed, find a CPA who will set you up with a tax deposit account with the IRS and make your monthly payment to them. The amount will be staggering. It will include Federal tax withholding, FICA — both sides — and a small cushion so you are not fined for not witholding too much. Oh, and set up a separate account for paying state income taxes at least on a quarterly basis. When you see what’s left, you may decide it’s not worth it to work for them.
If they fire you for questioning this move, in addition to a potential lawsuit, you likely qualify for unemployment benefits. And re the current credit card debt, call the National Foundation for Credit Counseling at 800-388-2227. You can trust them. Bankruptcy might be the only way out, depending on your assets and future income.
I know this must seem overwhelming, but make that call first. They can guide you. And if this “independent contractor” status is happening to a lot of people at your company, maybe get together and find an employment law attorney through your state bar association. And if you think this is age discrimination, use the state bar association for lawyers who specialize in that.
This isn’t going to get better by waiting, so act now to stand up for your rights and to follow the tax law if you decide to keep working there.
