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Going from 1099 to W2 and having trouble with cash flow

Posted: Sat Jul 22, 2017 12:03 pm
by notmyhand
I am about to accept a new job but going from 1099 to W2 am running out the budget and having trouble making the numbers work. Suggestions on budget and different ways to make this work are welcome.

DH Income - 75k a year, W2, possible bonus of 10-30k at year end
My current income - base 94k a year, currently on pace to be at 200k a year, 1099, working 60-80 hours a week
New proposal - 100k a year base, W2, ~175k-200k a year if working 60-80 hours a week, plus bonus

I should be making out well in this as I am going from 1099 to W2 for roughly the same pay.

Paycheck calculator says:
-His pay - minus taxes, taxed at married using single rate, 0 allowances, minus 3.07% state, 1% local, unemployment, $300 monthly insurance, $1636 401k (only eligible for half the year so need to max out in 5.5 months) = 1540 a month
-My new base pay - minus taxes, taxed at married using single rate, 0 allowances, minus 3.07% state, 1% local, unemployment, no insurance cost to me) = 5651.68 a month

That equals 7191.68 a month or 86300.16 a year and does not include me maxing out a 401k (I have already done so this year through my 1099). That seems awfully low for an income of 175k. What am I doing wrong? Running a quick 1040 calculator tells me I should pay around 30k in federal taxes, with the above withholding we have about 33k which is fine.

Current budget -
$2300 mtg (just principal and interest), currently paying $3800
$400 tractor payment (0% APR)
$1000 insurance/property taxes (house, cars, umbrella, mine subsidence - 2500 a year, disability policies are about 2500 a year, 2200 life insurance, unknown property taxes just yet as house was just bought and there was a county wide reassessment)
$1000 animals (four big dogs, fostering for cat rescue, prescription food just for one is 100 a month, prescriptions are about 125 a month, cats currently eating about 10 a day in wet canned food)
$110 cell phones (Page plus)
$500 medical (have a condition that requires constant care)
$106 internet/cable (will drop cable but internet is $86+ tax, no other providers)
$500 electric (no natural gas, 2800 sq ft ranch house, 2000-3000 kWh used a month)
$120 water (will be going up due to a 16% increase)
$500 food
$13 netflix
$300 fuel (72 miles commute per day combined for the two of us, family is across the state)
$500 Misc (usually home improvement)
$30 trash
Total = 7379 a month or 8879 if I want to keep paying extra on the mortgage which I do

That is more than we will be taking home on our base pay and it doesn't leave any room for any savings. Why do I feel like this budget should work fine on those gross incomes?

Thoughts? Help?

Re: Going from 1099 to W2 and having trouble with cash flow

Posted: Sat Jul 22, 2017 12:11 pm
by PFInterest
either your calculations are wrong...or you spend too much...or both.
at 275K for the year....this shouldnt be an issue...

Re: Going from 1099 to W2 and having trouble with cash flow

Posted: Sat Jul 22, 2017 12:33 pm
by Svensk Anga
His take-home at 776 on over $6000 gross is way too low, even with the hefty 401k.

Max 401k (18,000) in 5.5 months is twice what you show. Maybe it's 2 x 776 per month?

Re: Going from 1099 to W2 and having trouble with cash flow

Posted: Sat Jul 22, 2017 12:52 pm
by notmyhand
Svensk Anga wrote:His take-home at 776 on over $6000 gross is way too low, even with the hefty 401k.

Max 401k (18,000) in 5.5 months is twice what you show. Maybe it's 2 x 776 per month?
Paycheck calculator is showing semi monthly:
3125 gross
579.74 federal withholding
193.75 social security
45.31 medicare
95.94 state
2.19 unemployment
33.45 local
150 insurance
1636 401k

388.62

I did forget 401k will be exempt from federal so that gives us 770 semi monthly or 1540 monthly which is better.

Re: Going from 1099 to W2 and having trouble with cash flow

Posted: Sat Jul 22, 2017 1:00 pm
by Finance-MD
Using an entire year at new job for simplicity
100k her income
75k his income

FICA taxable income = 175k

18k his 401k
18k her 401k

Federal/state/local taxable income = 139k

TAXES
Federal tax (MFJ, std deduction) = $20k
FICA (7.65%) = $13k
State/local tax (4.1%) = $6k
Total = $39k

SUMMARY
175k base income
39k taxes
136k net income
36k 401k
100k take home pay ($8300/mo)

Savings rate 36k/136k = 26.5% (but this money is pretax).

If you max Roth IRA's, your monthly take home will be $900 less per month.

The expenses for heat and pets are the striking outliers. you could likely be at a more expensive house that is more energy efficient without additional cost, especially since now with higher taxable income, the property tax and mortgage deduction could help offset the cost.

Re: Going from 1099 to W2 and having trouble with cash flow

Posted: Sat Jul 22, 2017 1:01 pm
by mhalley
Are you setting up the calculator for biweekly and counting it as monthly?
Try this calculator and be sure to check it as monthly.
http://www.calculator.net/take-home-pay-calculator.html

Re: Going from 1099 to W2 and having trouble with cash flow

Posted: Sat Jul 22, 2017 1:07 pm
by notmyhand
No, I'm setting it to semi-monthly as we both get paid semi-monthly. I think a large difference is whether I take it out using married or married at the single rate. Switching to married brings my take home from 2825.84 to 3076.79.

Re: Going from 1099 to W2 and having trouble with cash flow

Posted: Sat Jul 22, 2017 1:10 pm
by notmyhand
Finance-MD wrote:Using an entire year at new job for simplicity
100k her income
75k his income

FICA taxable income = 175k

18k his 401k
18k her 401k

Federal/state/local taxable income = 139k

TAXES
Federal tax (MFJ, std deduction) = $20k
FICA (7.65%) = $13k
State/local tax (4.1%) = $6k
Total = $39k

SUMMARY
175k base income
39k taxes
136k net income
36k 401k
100k take home pay ($8300/mo)

Savings rate 36k/136k = 26.5% (but this money is pretax).

If you max Roth IRA's, your monthly take home will be $900 less per month.

The expenses for heat and pets are the striking outliers. you could likely be at a more expensive house that is more energy efficient without additional cost, especially since now with higher taxable income, the property tax and mortgage deduction could help offset the cost.
This is more of what I would expect. I will have to change from being taxed at the single rate to the married rate and see if that helps.

Re: Going from 1099 to W2 and having trouble with cash flow

Posted: Sat Jul 22, 2017 1:23 pm
by TravelforFun
notmyhand wrote:
Svensk Anga wrote:His take-home at 776 on over $6000 gross is way too low, even with the hefty 401k.

Max 401k (18,000) in 5.5 months is twice what you show. Maybe it's 2 x 776 per month?
Paycheck calculator is showing semi monthly:
3125 gross
579.74 federal withholding
193.75 social security
45.31 medicare
95.94 state
2.19 unemployment
33.45 local
150 insurance
1636 401k

388.62

I did forget 401k will be exempt from federal so that gives us 770 semi monthly or 1540 monthly which is better.
His 401K contribution is more than 50% of his gross income. I would reduce the 401K amount and contribute to a Roth IRA.

Re: Going from 1099 to W2 and having trouble with cash flow

Posted: Sat Jul 22, 2017 1:33 pm
by Finance-MD
notmyhand wrote:
Finance-MD wrote:Using an entire year at new job for simplicity
100k her income
75k his income

FICA taxable income = 175k

18k his 401k
18k her 401k

Federal/state/local taxable income = 139k

TAXES
Federal tax (MFJ, std deduction) = $20k
FICA (7.65%) = $13k
State/local tax (4.1%) = $6k
Total = $39k

SUMMARY
175k base income
39k taxes
136k net income
36k 401k
100k take home pay ($8300/mo)

Savings rate 36k/136k = 26.5% (but this money is pretax).

If you max Roth IRA's, your monthly take home will be $900 less per month.

The expenses for heat and pets are the striking outliers. you could likely be at a more expensive house that is more energy efficient without additional cost, especially since now with higher taxable income, the property tax and mortgage deduction could help offset the cost.
This is more of what I would expect. I will have to change from being taxed at the single rate to the married rate and see if that helps.
You can adjust your W4 however you see fit but what matters is how you file taxes.

I keep my paycheck withholding as low as possible to meet safe harbor rules (for me 110% of tax liability for previous year) and escrow extra money each paycheck based on YTD earnings and projections for the remainder of the year.

Know that your withholding will likely be at a higher marginal rate in months where you receive a bonus. Earning taxable income of ~270k be 139k will have a sizable effect on your year tax liability.

I would run my income and withholding a through TaxCaster at least every quarter if not monthly, and after any big bonus. You can use married to keep your cash flow higher - just know if you are under withholding and plan appropriately.

You can always switch to single on w4 to increase the withholding to catch up.