My wife graduated college in May ’13 & was pregnant at the time. She received a few different job offers w/ some large MegaCorp companies but due to a number of reasons we opted to turn them down. We were blessed with a perfectly healthy, beautiful baby girl in October & my wife has stayed home with our daughter since. My wife recently started applying again & has been offered a job working for another MegaCorp as a contractor. She will be working as an account coordinator in the Supply Chain/Operations group for a very large Oil & Gas company here in Houston. While there are some drawbacks from being hired as a contractor rather than FT employee, we believe the opportunity is worth it to get her career off to a good start. Having this type of experience & this company on her resume should benefit her further down the road. We are aware that her income will be greatly offset with the added expenses (daycare, commuting, time, etc), but we feel that will be the case with the majority of entry-level positions & she has to start somewhere.
I am posting this to accomplish a couple things: Get a better idea as to how to handle our families tax situation as well as figure out all the important details & questions to ask the employer in regards to working as a contractor rather than a FT employee.
My employer covers all of our families insurance needs & my 401K.
Tax Filing Status: Married Filing Jointly
State of Residence: TX
Age: Me 24/Her 22
My current salary is $55K (expecting a decent increase this summer) & my company matches 50% of my contributions up to 6%, so 3%, as well as a once a year profit sharing contribution (ranging anywhere from an additional 4-6% that will go straight into my 401K). As of right now, being in the 15% tax bracket, my 401K contributions are set to 7% on a ROTH basis & I have been maxing out my ROTH IRA as well.
My wife will not be able to participate in a 401K, but I was planning on increasing my contributions & converting them back to a traditional basis as well as start to max out a ROTH IRA under her name in addition to continuing maxing my ROTH IRA.
My wife will be paid $25/hr and expected to work a standard 40 hr-week (there may be some overtime opportunities as well). This rate (at 40 hrs/week @ 52 weeks/yr) annualizes out to $52K/yr which would move us into the 25% Federal tax bracket.
FWIW, my current W4 withholdings allowance is set at 5.
- 1. How should we determine how much to withhold for taxes from my wife’s check? Are there any, convenient, online tools/calculators for this?
2. Since she will work as a contractor, what expenses of hers (if any) are deductible? She will have typical commuting expenses (gas, tolls, depreciation, maintenance) as well as she will have to pay for her own parking as she will be working downtown. Is any of that deductible in her case? Otherwise, she will be using their office, computer, phones, etc.
3. Do we have to pay her taxes quarterly?
4. Should I adjust my withholdings allowance at all?
5. Those who have experience working as a contractor in a situation similar to this, what sort of questions should we ask beforehand? I am a very thorough, detailed driven person, where my wife is a little more relaxed & plans to just figure everything out once she starts. I don’t want her to ask too many nit-picky type questions ahead of time but also don’t want to get any major surprises regarding both ours & their expectations once she starts (current start date is still a few weeks away). This was all set-up through a recruiter, up to this point, all communications back & forth have been done through the recruiter.
6. Based on the information presented, should we open a tIRA or a ROTH IRA for her?
7. If my employer allows a middle of the year change, I plan to contribute the full amount ($2500) to our DCA account for daycare expenses. We already take advantage of the FSA plan. Will her working as a contractor qualify as a life changing event? Daycare will cost us $250/week. Are there any other daycare related tax issues I may not be thinking of?
8. Am I missing anything? Any other insight, advice, recommendations are very appreciated.