US citizen living in the US -- remote work for German company. Taxes? Currency? Invoicing? Benefits?

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understandingJH
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US citizen living in the US -- remote work for German company. Taxes? Currency? Invoicing? Benefits?

Post by understandingJH » Wed Jun 20, 2018 10:42 am

So I'm exploring new job opportunities. All but one are domestic and full-time employee.

One opportunity is for a 100% remote position for a German company (the entire team is 100% remote). They mentioned that working as a contractor is the only option. I'm open to the idea but need to know what to expect and what I need to do from a tax, legal, insurance, and business perspective. I have some questions but please let me know of what I might not yet know but should know.

Below salary ranges and calculations are fudged a bit to maintain privacy but are close to the actual values.

It sounds like this will be 40 hours per week -- of course I'll need to confirm (they list a broad salary range as €50,000 - 160,000 -- seems they are looking for good talent anywhere in the world). They mention that I would need to okay with sending invoices to them.

Questions:
  1. I'm a Senior Software Engineer living in a low cost area. I listed my salary range as $1X0,000-1Y0,000 USD on the application (required) before I realized this is an independent contracting position. How do I go about negotiating for more than listed if they want to extend an offer? I also have other offers and a few more on-site interviews coming up.
  2. That range is what I make or expect to make as a full-time employee where I lived (and is a well researched range). How much more would I need to make than this figure to make it comparable to a full-time W2 employee? Back of the napkin round numbers look like about $15,000 for individual health, vision and dental insurance (after tax that should cover $750 for monthly premiums -- is this enough?), around 30 days off (about $15,000 -- Germans seem to take a minimum of 29 days off), self employment tax (extra 7.65%) about $10,000. Add in another $10,000 for the lack of 401k match and tax advantaged space. This adds to an extra $50,000 to be on par with W-2 employment. Does this ball park sound right? Am I missing anything?
  3. If they pay me in Euro instead of USD how much currency risk am I taking on? Should I push for them to pay in USD? I assume there is also an exchange fee if I get paid in Euro.
  4. How do taxes work in this situation? Being in a different country I doubt they issue 1099s. So how does this work? Do I need to file estimated taxes quarterly? Do I need to worry about German taxes in addition to US (seems I won't have to?)?

understandingJH
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Re: US citizen living in the US -- remote work for German company. Taxes? Currency? Invoicing? Benefits?

Post by understandingJH » Fri Jul 06, 2018 11:51 am

Alright so some more research about this option:
  1. The value of 401k tax reduction shouldn't really count. As those taxes will eventually be paid. They are worth something for tax-free growth, but I can open an individual 401k or SEP-IRA with vanguard if I am an independent contractor (sole proprietorship or form an LLC). In fact there is the advantage of contributing more than $18,500 to these plans. So let's just account for the lack of 401k Employer Match (say, $5000).
  2. Health Insurance is tricky. I looked at the Healthcare.Gov today and the options are extremely limited (really only very high out of pocket max of 6,500 with 5000 deductible for HSA). Also The premiums are not taxed federally so I don't know if I need $15k to cover insurance for one person. And most employers cover only 75-90% of the premium. It's probably more like $10,000 for good health insurance, or $4000 for high deductible and high OOP max. However with HSAs and high OOP max employers sometimes provide contributions to the HSA to help offset these issues. So, Insurance probably is valued $2000 higher. So $6,000-10,000.
  3. Invoicing risk. If monthly I bear bigger risk than weekly. I need to find this out (e.g. financial trouble and hearing: "Don't worry we'll pay you..." and then what if they go out of business?). Weekly reduced the amount of money lost as if they start missing payments you start looking for new work sooner.
  4. Currency risk. This is one of the biggest risks. Is it possible to purchase currency exchange futures as individual? And for small weekly or monthly income amounts? If so how expensive? The added expense would need to be factored in to the compensation (unless they pay me in USD)
  5. Invoicing cost. Paypal and similar will charge fees. So let's add on $4000 in invoicing costs.
  6. Currency Exchange cost. Assuming this isn't covered by future contracts, let's add another $4000. (unless they pay me in USD)
  7. Long term disability insurance: Say $2000.
  8. Family Medical Leave, value of this? How do you bake that in to compensation?
  9. Misc costs (extra utilities working from home, extra coffee shop purchases (e.g. office space -- renting via buying stuff every hour or two or hoping around coffee shops), Internet costs (adding mobile hotspot features), lack of free food at work, time spent bookkeeping and invoices, filing extra tax paperwork, etc). Let's say this all adds another $5000 or so.
  10. Paid time off, it's possible that the company might let me invoice for time off. If that's the case I don't need to include it.
So total extra comp needed that I've been able to identify in this email and last plus updated adjustments:
  • $5000 (401k match)
  • $6000-1000 (Health Insurance)
  • $0-$15,000 (30 PTO days see point #10)
  • $10,000 (FICA)
  • $0-4000 (Currency Exchange Fee)
  • $0-???? (FX Future contracts?)
  • $2000 (Long term Disability)
  • $???? (Family Medical leave)
  • $5000 (Misc)
$30,000-53,000 or more (e.g. cost of FX hedge, value of Family Medial Leave, etc).

Again it's currency risk that I'm most concerned about. Last year one Euro was worth ~0.95 USD. Today it's ~0.85. In 2014 it was about ~0.75. So the swings look like they can be at least 25% (I realize there really is no limit to how bad or favorable it can get). If forward contracts are possible, practical, of cost effective, and I'm not paid in USD, this seems super risky!

Assuming I have to bear the burden of risk for FX and family medical leave, then I'd need to add essentially a risk premium to my compensation. What is a fair amount to charge for this? Say 12.5% (half of the probable currency exchange swing in the coming years?). That might add $20,000 alone. Of course just going this route vs typical salary W2 employee is risky. Should I add even more markup? This starts getting really expensive and probably begins to push me out of the range of what the company is willing to pay. Even if not, I don't think this company has employed or contracted anyone in the US, only Europe, South America, and Asia. As such I'd be one of the most expensive workers even though I live in a LCOL area of the US. Would I be first to be laid off if they had some financial trouble? Would I be able to work fulltime every week? The list of risky unknowns seems sky high. I have one more interview with the company. I'm one of three they will do final interviews with. If this proceeds to an offer, what should I ask and how should I negotiate. Any ideas are welcome.

At a minimum I'd be looking at $45-68k more as a rough estimate for marked-up compensation. Basically this amounts to something in the range of ~40-60% more compensation than a salaried employee.

mkawasaki
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Re: US citizen living in the US -- remote work for German company. Taxes? Currency? Invoicing? Benefits?

Post by mkawasaki » Fri Jul 06, 2018 12:13 pm

Few simple thoughts to help, but overall would state this is a very complicated situation. I speak as a person who did two expat assignments (total of 7 years), but I was a US expat, working in Singapore and Tokyo, being paid in US dollars back in the USA.

First, contractor pay should ask for minimum of 50% above the hourly rate if a full-time employee. I hire many contractors at my company and this is pretty standard (for all the reasons you listed in your message).

Second, currency risk is a reality and think this is something you'll have to negotiate. My company gave me a "rate guarantee" and I could exchange funds at that rate (which changed every six months). As you'll be a contractor not sure if they will agree to do a transaction of currency on your behalf, would not expect them to. Also, getting paid in Euros would mean you check is processed in Europe -- which would cause complications (getting bank account in-country not always easy). I would request to be paid based on your home location and in US$$.

Third, taxes get very complicated -- but it depends on where you are paid. The simple summary is "you will always have to pay US taxes". Doing work in the US and getting paid in Europe would be troublesome, in my opinion, but best to talk to an international tax accountant. My company provided one to me and can tell you my tax return was 90 to 120 pages every year.

Overall, I wouldn't state to not work for an overseas company -- but if they only pay in Euros then I'd probably walk away because of the significant risk involved (for all the regions you mentioned).

Hope this helps!

understandingJH
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Re: US citizen living in the US -- remote work for German company. Taxes? Currency? Invoicing? Benefits?

Post by understandingJH » Fri Jul 13, 2018 2:23 pm

mkawasaki wrote:
Fri Jul 06, 2018 12:13 pm
Overall, I wouldn't state to not work for an overseas company -- but if they only pay in Euros then I'd probably walk away because of the significant risk involved (for all the regions you mentioned).
I haven't gotten an offer yet, but I did find out they would pay me in USD, invoice monthly, and also give me paid vacation (30 days -- in otherwords my monthly invoice would always be the same amount regardless of if I take time off).

So since I'm not bearing currency risk and exchange rate fees, it looks like I could make this work if I account for the other overhead that I talked about, which is a multiplier of about 1.4-1.5x. If the multiplier is higher than this I'd be pricing myself out of their pay range (which was stated in the job ad). The company is 100% remote and has people working in many other countries less expensive than the US.

Jack56
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Re: US citizen living in the US -- remote work for German company. Taxes? Currency? Invoicing? Benefits?

Post by Jack56 » Tue Jul 17, 2018 3:16 pm

Agree on a salary in USD and have them pay it in USD. US citizens are taxed on worldwide income so the payor's domicile is irrelevant. You will need to keep good records and report on schedule C. If you are organized it is easy with Turbo tax. If you are not organized use an accountant.

Jack FFR1846
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Re: US citizen living in the US -- remote work for German company. Taxes? Currency? Invoicing? Benefits?

Post by Jack FFR1846 » Tue Jul 17, 2018 3:24 pm

EE friends of mine who have worked as contractors for a while have told me to simply double what you would have made as a W2 employee to be at the same level. With the added complications of a foreign currency, tax issues and unknowns, I think I'd go 250%. Otherwise, I'd tell them no.
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understandingJH
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Re: US citizen living in the US -- remote work for German company. Taxes? Currency? Invoicing? Benefits?

Post by understandingJH » Wed Jul 18, 2018 5:13 pm

Thanks for the feedback. It turns out this didn't work out. While they would have paid in USD, even asking for 150% more priced me too high relative to the other two candidates they had in the final round. They told me that I would have been a great fit and did the best on the interviews and assesments but I was simply much more expensive with my updated compensation requirements (I assume the other candidates where either in Europe or Asia).

Wolkenspiel
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Re: US citizen living in the US -- remote work for German company. Taxes? Currency? Invoicing? Benefits?

Post by Wolkenspiel » Thu Jul 19, 2018 8:53 am

understandingJH wrote:
Fri Jul 06, 2018 11:51 am

Again it's currency risk that I'm most concerned about. Last year one Euro was worth ~0.95 USD. Today it's ~0.85. In 2014 it was about ~0.75.
I assume that's just a typo, but your numbers are inverted. These days one Euro is worth 1.17 USD. I have been at the receiving end of large exchange rate swings (lived in Europe, but paid in USD) - if you can convince them to tie at least part of the salary to the exchange rate you'll sleep much better.

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