hello,
I would like some help in evaluating 2 job offers to see which is more advantageous. One is an employed position and one would be an independent contractor, but both have the same pay. I was researching that typically IC jobs would need a certain amt over employed positions to cover the extra SE tax and other expenses. The only real difference is that the employed job would cover some expenses, around 20,000. The advantage of the IC job would be the ability for me to open a solo 401k and contribute the max (53k) vs just 18k. And also I may drop a tax bracket b/c of the deductions from all the expenses.
Health insurance isn't an issue as I have it through my wife's job. Both jobs are pretty equal in terms of non-financial factors (location, atmosphere, etc).
I thought it would be easy to just calculate it out, but i'm just getting mixed up over the numbers. are there any other factors I should be considering?
Thanks!
Help to evaluate job offers - IC vs employee
Re: Help to evaluate job offers - IC vs employee
If I read that correctly, the IC job would cost you an extra $20K plus the SE tax.s2kmw wrote:hello,
...One is an employed position and one would be an independent contractor, but both have the same pay.
...the extra SE tax and other expenses.
...the employed job would cover some expenses, around 20,000.
The advantage of the IC job would be the ability for me to open a solo 401k and contribute the max (53k) vs just 18k. And also I may drop a tax bracket b/c of the deductions from all the expenses.
If you drop into the 25% bracket, and pay 5% state tax, let's assume the solo 401k saves the average of 28% and 25% (=26.5%) plus the 5% state.
That's ($53k - $18K) * 31.5% = $11K.
Seems the IC saves you $11K but costs $20K + SE tax. Or did I read or assume incorrectly?
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Re: Help to evaluate job offers - IC vs employee
Seems with you wife's insurance you may be better of with indepdent contracting.
But have you thought about long ter, will you be able to ustain the independent contracting, year after year. The higher pay in independent contracting is there for a reason, you can be let go within two weeks.
Will you be able to find another job within the next four weeks, if you are let go
Employee position is usually long term.
But have you thought about long ter, will you be able to ustain the independent contracting, year after year. The higher pay in independent contracting is there for a reason, you can be let go within two weeks.
Will you be able to find another job within the next four weeks, if you are let go
Employee position is usually long term.
Invest when you have the money, sell when you need the money, for real life expenses...
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Re: Help to evaluate job offers - IC vs employee
At equal pay, the employee offer seems to be clearly the best. It covers $20,000 in benefits you would have to pay for as an IC. Your security as an IC in the job would be less. When a company has a business downturn, contractors are usually the first to go. Also, as an employee you will most likely get paid holidays and vacation. Companies will pay for any necessary job training for employees, whereas usually contractors pay for their training and it is on their own time, not the companies.
An IC job should pay at least a 20% premium over employee to be seriously considered IMO. I used a lot of IC in my work career and none of them would have considered an IC position unless it had premium pay. I occasionally would ask contractor firms what they paid their employees and contractors. They always said you do not have to match what we pay because of your benefits and job security.
Frankly, I do not understand why you are not seeing this. The choice seems very clear to me.
An IC job should pay at least a 20% premium over employee to be seriously considered IMO. I used a lot of IC in my work career and none of them would have considered an IC position unless it had premium pay. I occasionally would ask contractor firms what they paid their employees and contractors. They always said you do not have to match what we pay because of your benefits and job security.
Frankly, I do not understand why you are not seeing this. The choice seems very clear to me.
Re: Help to evaluate job offers - IC vs employee
Let me be the contrarian.carolinaman wrote:Frankly, I do not understand why you are not seeing this. The choice seems very clear to me.
Clearly, the IC job is superior simply for the i401k advantage over the employed 401k. Do the math, long term. This presumes that the OP follows through with literally maxing out either type of 401k.
"Job security" is a myth either way.
(I'm living proof, having been exposed to both 401k opportunities during my working life)
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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Re: Help to evaluate job offers - IC vs employee
I agree with this. I would go farther and say that "permanent" employees are operating under an illusion.BolderBoy wrote:"Job security" is a myth either way.
I have worked both sides of this. Some anecdotal information.
I have never had a contract with less than a 30 day notice. I have actually never had a contract that they didn't give me at least 2-3 months on whether the contract would be renewed. I usually found the next contract before the old one ended.
On the other hand, I know of several occasions when people were laid off out of the blue with no indication the company was considering such a thing. It usually takes a person laid off more than two weeks to find their next permanent job.
So it is really an illusion to think that your permanent job has more security. Remember fundamentally you are just an expense to the company.
Re: Help to evaluate job offers - IC vs employee
Yes, that was pretty much what I came up with as well - thanks for verifying.FiveK wrote:If I read that correctly, the IC job would cost you an extra $20K plus the SE tax.s2kmw wrote:hello,
...One is an employed position and one would be an independent contractor, but both have the same pay.
...the extra SE tax and other expenses.
...the employed job would cover some expenses, around 20,000.
The advantage of the IC job would be the ability for me to open a solo 401k and contribute the max (53k) vs just 18k. And also I may drop a tax bracket b/c of the deductions from all the expenses.
If you drop into the 25% bracket, and pay 5% state tax, let's assume the solo 401k saves the average of 28% and 25% (=26.5%) plus the 5% state.
That's ($53k - $18K) * 31.5% = $11K.
Seems the IC saves you $11K but costs $20K + SE tax. Or did I read or assume incorrectly?
THis was mainly what I was trying to figure out...I think I would be ok with paying the extra expenses b/c of i401k possibilities. Maxing out shouldn't be a problem. Of course I can't predict what the future holds, but I feel I could maintain doing IC.BolderBoy wrote:Let me be the contrarian.carolinaman wrote:Frankly, I do not understand why you are not seeing this. The choice seems very clear to me.
Clearly, the IC job is superior simply for the i401k advantage over the employed 401k. Do the math, long term. This presumes that the OP follows through with literally maxing out either type of 401k.
"Job security" is a myth either way.
(I'm living proof, having been exposed to both 401k opportunities during my working life)
Thanks for the help - this forum has been one of the best things I have come across.