How to calculate if a new job will increase income?

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tomwood
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How to calculate if a new job will increase income?

Post by tomwood » Thu May 02, 2019 9:45 am

I am a PT and currently work as an independent contractor. My income is gross pay, and then I have many other expenses. Which numbers or factors I should use to determine my income? I need that number to compare to my job offer, which will be a salary position. Additionally, the new job would be a federal job for the VA Hospital, so there are factors such as a small pension I’d like to account for.

I’m willing to do the work, but don’t know where to begin. Can anyone help me sort through the numbers and factors for my current job and possible future job to help me determine the better financial path?

This is likely a large & maybe unusual request so I’d really appreciate any help that anyone can offer please.
Thank you,
Tom

stoptothink
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Re: How to calculate if a new job will increase income?

Post by stoptothink » Thu May 02, 2019 9:47 am

Why don't you post the numbers?

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Thu May 02, 2019 10:07 am

stoptothink wrote:
Thu May 02, 2019 9:47 am
Why don't you post the numbers?
My entire tax returns ?

Thesaints
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Re: How to calculate if a new job will increase income?

Post by Thesaints » Thu May 02, 2019 10:10 am

Salary is certain, while income as an independent contractor is not. I’d focus on that, rather than trying to assess very accurately your income.
Certainly you have an approximate idea of how much you make.

stoptothink
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Re: How to calculate if a new job will increase income?

Post by stoptothink » Thu May 02, 2019 10:13 am

tomwood wrote:
Thu May 02, 2019 10:07 am
stoptothink wrote:
Thu May 02, 2019 9:47 am
Why don't you post the numbers?
My entire tax returns ?
It shouldn't take all of that information for some of us to chime in. As already said, the stability and benefits provided by a salary position is worth a lot, you shouldn't just evaluate this situation based upon dollars taken home per hour of work.

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Thu May 02, 2019 10:15 am

Thesaints wrote:
Thu May 02, 2019 10:10 am
Salary is certain, while income as an independent contractor is not. I’d focus on that, rather than trying to assess very accurately your income.
Certainly you have an approximate idea of how much you make.
I do.
but which deductions do I remove from my gross income to most accurately account my income?

And, how do I factor benefits from the VA, like a pension?

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Stinky
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Re: How to calculate if a new job will increase income?

Post by Stinky » Thu May 02, 2019 10:20 am

I’d start by just posting your independent contractor income from 2018, per your tax return.

And also the base salary offer for the new position.

Bogleheads can take it from there.
It's a GREAT day to be alive - Travis Tritt

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Thu May 02, 2019 4:45 pm

Stinky wrote:
Thu May 02, 2019 10:20 am
I’d start by just posting your independent contractor income from 2018, per your tax return.

And also the base salary offer for the new position.

Bogleheads can take it from there.
Roughly $120k gross in 2018 and VA is offering $83k

Thank you

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Stinky
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Re: How to calculate if a new job will increase income?

Post by Stinky » Thu May 02, 2019 5:36 pm

tomwood wrote:
Thu May 02, 2019 4:45 pm
Stinky wrote:
Thu May 02, 2019 10:20 am
I’d start by just posting your independent contractor income from 2018, per your tax return.

And also the base salary offer for the new position.

Bogleheads can take it from there.
Roughly $120k gross in 2018 and VA is offering $83k

Thank you
You can start off by taking 7.45% off your prior income for self employment FICA, which would be paid by your employer going forward. That takes your prior income down to about $110k.

What was your heath insurance premium for 2018? And what will it be in the new job?

Also, can you give a rough value for the federal pension? What about a savings plan match for federal job?
It's a GREAT day to be alive - Travis Tritt

xenochrony
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Re: How to calculate if a new job will increase income?

Post by xenochrony » Thu May 02, 2019 5:40 pm

I'm doing the same comparison you are right now. What I did was to tally all my IC-specific expenses that I wouldnt have as an FTE and then monetize all the prospective FTE benefits (which can be hard to do). From there, I ask whether (FTE salary + benefits) > (IC gross income - biz expenses).

The calculation has a bit of lsop/wiggle room in it, but you should be able to get a close approximation of the relationship. :moneybag

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Re: How to calculate if a new job will increase income?

Post by AerialWombat » Thu May 02, 2019 5:58 pm

I assume you file a schedule C with your 1040.

Your business expenses on that form go away when you take the jobby job. Also, half your self-employment tax goes away.

Add those two items to the employee salary.

Is it more or less than the $120k IC gross?
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Re: How to calculate if a new job will increase income?

Post by delamer » Thu May 02, 2019 6:15 pm

You will have to make a mandatory contribution to the FERS pension — I think it is 4.4% of gross, but you should check. Those contributions are refundable if you leave federal service pre-pension.

You’ll receive an automatic 1% contribution to your TSP [federal 401(k)] from your agency, whether you make any contributions or not. If you do contribute 5% to the TSP, you’ll receive another 4% in match (the maximum).

I know that you have self-employment expenses that are tax deductible. So I presume you’d subtract your tax savings attributable to those expenses from your actual expenses to see what your net expenses are. And then subtract net expenses from gross, and subtract 1/2 of payroll taxes, to get a rough salary.

So if you gross $110K, have expenses of $20,000, and your tax savings are $8,000, then you are left with $98K. (Obviously, I have no idea what the actual expenses/taxes are.). Then subtract the 1/2 of the payroll taxes that you pay now, or roughly $7,000. Which would leave you with $91K as a rough salary equivalent, in my example.

FYI, I am only slightly familiar with self-employment tax filings, so hopefully someone else will weigh in if I am off base.

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Fri May 03, 2019 8:36 am

AerialWombat wrote:
Thu May 02, 2019 5:58 pm
I assume you file a schedule C with your 1040.

Your business expenses on that form go away when you take the jobby job. Also, half your self-employment tax goes away.

Add those two items to the employee salary.

Is it more or less than the $120k IC gross?
Last year on schedule C my total expenses were $12k

Why is only half my self employment tax being removed and not all of it?

The VA job offers additional benefits too, how can I factor a pension into this equation?

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Fri May 03, 2019 9:14 am

Stinky wrote:
Thu May 02, 2019 5:36 pm
tomwood wrote:
Thu May 02, 2019 4:45 pm
Stinky wrote:
Thu May 02, 2019 10:20 am
I’d start by just posting your independent contractor income from 2018, per your tax return.

And also the base salary offer for the new position.

Bogleheads can take it from there.
Roughly $120k gross in 2018 and VA is offering $83k

Thank you
You can start off by taking 7.45% off your prior income for self employment FICA, which would be paid by your employer going forward. That takes your prior income down to about $110k.

What was your heath insurance premium for 2018? And what will it be in the new job?

Also, can you give a rough value for the federal pension? What about a savings plan match for federal job?
Health insurance is comparable, but about $500 cheaper with the VA job.

The pension is a calculation which takes into account 3 highest years salary, after 20 years of work, and the salary at the federal level increases annually with inflation.
I’d say on the low end the pension will be $30,000 per year.
And yes there is a 5% match, dollar for dollar, on the retirement account

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Fri May 03, 2019 9:17 am

xenochrony wrote:
Thu May 02, 2019 5:40 pm
I'm doing the same comparison you are right now. What I did was to tally all my IC-specific expenses that I wouldnt have as an FTE and then monetize all the prospective FTE benefits (which can be hard to do). From there, I ask whether (FTE salary + benefits) > (IC gross income - biz expenses).

The calculation has a bit of lsop/wiggle room in it, but you should be able to get a close approximation of the relationship. :moneybag

This information appears to be very helpful, but I am not financially literate enough to fully understand what you wrote. Would you be able to break this down for me in a bit more detail please?

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Fri May 03, 2019 9:28 am

delamer wrote:
Thu May 02, 2019 6:15 pm
You will have to make a mandatory contribution to the FERS pension — I think it is 4.4% of gross, but you should check. Those contributions are refundable if you leave federal service pre-pension.

You’ll receive an automatic 1% contribution to your TSP [federal 401(k)] from your agency, whether you make any contributions or not. If you do contribute 5% to the TSP, you’ll receive another 4% in match (the maximum).
For my calculations, should I count this as canceling each other out? I won’t count the 4.4% gross contribution but also won’t count the 5% match. Does that work?

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Fri May 03, 2019 9:40 am

delamer wrote:
Thu May 02, 2019 6:15 pm
I know that you have self-employment expenses that are tax deductible. So I presume you’d subtract your tax savings attributable to those expenses from your actual expenses to see what your net expenses are. And then subtract net expenses from gross, and subtract 1/2 of payroll taxes, to get a rough salary.
If I calculated this correctly, and hopefully I did. My net expenses are $12k

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Re: How to calculate if a new job will increase income?

Post by niceguy7376 » Fri May 03, 2019 9:48 am

tomwood wrote:
Fri May 03, 2019 8:36 am
Last year on schedule C my total expenses were $12k
Why is only half my self employment tax being removed and not all of it?
The VA job offers additional benefits too, how can I factor a pension into this equation?
Employee AND Employer each pay 7.65% of Pay as Social Security + Medicare. Currently, you are both Employer and Employee.
When you join as W2 of Fed, when they run 83K / 26 paychecks, they will then deduct 7.65% from that amount as your share of SS+Medicare. Fed will pay similar amount into your SSA Account.

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Re: How to calculate if a new job will increase income?

Post by delamer » Fri May 03, 2019 11:42 am

tomwood wrote:
Fri May 03, 2019 9:40 am
delamer wrote:
Thu May 02, 2019 6:15 pm
I know that you have self-employment expenses that are tax deductible. So I presume you’d subtract your tax savings attributable to those expenses from your actual expenses to see what your net expenses are. And then subtract net expenses from gross, and subtract 1/2 of payroll taxes, to get a rough salary.
If I calculated this correctly, and hopefully I did. My net expenses are $12k
So you are at $98K. Then subtract the employer portion of payroll taxes, roughly $7,500. So $92,000 is close to the equivalent of a gross salary for you.

Then add in the 1% TSP match to the government salary. Then subtract the 4.4% for the mandatory FERS contribution.

For the pension benefit, figure out how much you’d need to have saved to buy an equivalent annuity.

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dm200
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Re: How to calculate if a new job will increase income?

Post by dm200 » Fri May 03, 2019 12:41 pm

Note that Federal retirees, normally, can receive health insurance benefits in retirement.

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dm200
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Re: How to calculate if a new job will increase income?

Post by dm200 » Fri May 03, 2019 12:44 pm

tomwood wrote:
Thu May 02, 2019 4:45 pm
Stinky wrote:
Thu May 02, 2019 10:20 am
I’d start by just posting your independent contractor income from 2018, per your tax return.
And also the base salary offer for the new position.
Bogleheads can take it from there.
Roughly $120k gross in 2018 and VA is offering $83k

Thank you
Can you "guestimate" how your gross income will change over next, say, five years vs the VA compensation?

KlangFool
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Re: How to calculate if a new job will increase income?

Post by KlangFool » Fri May 03, 2019 12:55 pm

tomwood wrote:
Thu May 02, 2019 4:45 pm
Stinky wrote:
Thu May 02, 2019 10:20 am
I’d start by just posting your independent contractor income from 2018, per your tax return.

And also the base salary offer for the new position.

Bogleheads can take it from there.
Roughly $120k gross in 2018 and VA is offering $83k

Thank you
tomwood,

Do you charge an hourly for your contracting job? If yes, what is the hourly rate? $60 per hour?

KlangFool

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Fri May 03, 2019 3:13 pm

delamer wrote:
Fri May 03, 2019 11:42 am
tomwood wrote:
Fri May 03, 2019 9:40 am
delamer wrote:
Thu May 02, 2019 6:15 pm
I know that you have self-employment expenses that are tax deductible. So I presume you’d subtract your tax savings attributable to those expenses from your actual expenses to see what your net expenses are. And then subtract net expenses from gross, and subtract 1/2 of payroll taxes, to get a rough salary.
If I calculated this correctly, and hopefully I did. My net expenses are $12k

For the pension benefit, figure out how much you’d need to have saved to buy an equivalent annuity.
My pension changes based on how many years I work. I ran a few annuity calculations and the premium payment required ranges from $277k to $355k today.
If I wait 20 years and buy one, comparable to VA regiment in 20 years, it will cost just over $550k and if I wait 30 years to buy the annuity, compared to VA retirement in 30 years, it costs $1.1m

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Fri May 03, 2019 5:06 pm

KlangFool wrote:
Fri May 03, 2019 12:55 pm
tomwood wrote:
Thu May 02, 2019 4:45 pm
Stinky wrote:
Thu May 02, 2019 10:20 am
I’d start by just posting your independent contractor income from 2018, per your tax return.

And also the base salary offer for the new position.

Bogleheads can take it from there.
Roughly $120k gross in 2018 and VA is offering $83k

Thank you

tomwood,

Do you charge an hourly for your contracting job? If yes, what is the hourly rate? $60 per hour?

KlangFool
It’s not a strict hourly rate. There are billing factors and percentages involved.

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ClevrChico
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Re: How to calculate if a new job will increase income?

Post by ClevrChico » Fri May 03, 2019 5:41 pm

Rule of thumb calculation:

$120k/1099 = $60/hour/1099

$60/hour/1099 = $60k/salary/w2 with full benefits

VA @ $83k > Contracting-converted-w2 @ $60k

The VA is most likely a pay increase.

dknightd
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Re: How to calculate if a new job will increase income?

Post by dknightd » Fri May 03, 2019 6:09 pm

tomwood wrote:
Thu May 02, 2019 9:45 am
I am a PT and currently work as an independent contractor. My income is gross pay, and then I have many other expenses. Which numbers or factors I should use to determine my income? I need that number to compare to my job offer, which will be a salary position. Additionally, the new job would be a federal job for the VA Hospital, so there are factors such as a small pension I’d like to account for.

I’m willing to do the work, but don’t know where to begin. Can anyone help me sort through the numbers and factors for my current job and possible future job to help me determine the better financial path?

This is likely a large & maybe unusual request so I’d really appreciate any help that anyone can offer please.
Thank you,
Tom
Easy - take your gross pay, delete your expenses. Compare the numbers.
The hard part is deciding if you want to continue as an independent contractor. Or sign on for the fed job.
That is a decision you have to make

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Re: How to calculate if a new job will increase income?

Post by TropikThunder » Fri May 03, 2019 7:21 pm

ClevrChico wrote:
Fri May 03, 2019 5:41 pm
$60/hour/1099 = $60k/salary/w2 with full benefits
How are you calculating $60/hr only turns into $60,000 salary? That's only half of what he says he made last year.

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ClevrChico
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Re: How to calculate if a new job will increase income?

Post by ClevrChico » Fri May 03, 2019 7:24 pm

TropikThunder wrote:
Fri May 03, 2019 7:21 pm
ClevrChico wrote:
Fri May 03, 2019 5:41 pm
$60/hour/1099 = $60k/salary/w2 with full benefits
How are you calculating $60/hr only turns into $60,000 salary? That's only half of what he says he made last year.
Salary includes benefits. 1099 includes overhead.

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Re: How to calculate if a new job will increase income?

Post by TropikThunder » Fri May 03, 2019 7:30 pm

ClevrChico wrote:
Fri May 03, 2019 7:24 pm
TropikThunder wrote:
Fri May 03, 2019 7:21 pm
ClevrChico wrote:
Fri May 03, 2019 5:41 pm
$60/hour/1099 = $60k/salary/w2 with full benefits
How are you calculating $60/hr only turns into $60,000 salary? That's only half of what he says he made last year.
Salary includes benefits. 1099 includes overhead.
I get that part, I'm asking where your numbers are coming from. $60/hr for him turned into $120,000 gross - $12,000 expenses -$9,000 employer share of FICA = $99,000. Where are you getting the $60,000 salary number from? Are you saying the benefits are worth more than $39,000? Is that an estimate or is this based on actual numbers somewhere?

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ClevrChico
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Re: How to calculate if a new job will increase income?

Post by ClevrChico » Fri May 03, 2019 9:12 pm

TropikThunder wrote:
Fri May 03, 2019 7:30 pm
ClevrChico wrote:
Fri May 03, 2019 7:24 pm
TropikThunder wrote:
Fri May 03, 2019 7:21 pm
ClevrChico wrote:
Fri May 03, 2019 5:41 pm
$60/hour/1099 = $60k/salary/w2 with full benefits
How are you calculating $60/hr only turns into $60,000 salary? That's only half of what he says he made last year.
Salary includes benefits. 1099 includes overhead.
I get that part, I'm asking where your numbers are coming from. $60/hr for him turned into $120,000 gross - $12,000 expenses -$9,000 employer share of FICA = $99,000. Where are you getting the $60,000 salary number from? Are you saying the benefits are worth more than $39,000? Is that an estimate or is this based on actual numbers somewhere?
It's a general rule of thumb that consultants use. That's assuming both 1099 and W2 are giving themselves a benefits package. It can be quite surprising until you spreadsheet it out. Some consultants are undercharging because they see the high hourly rates and think they're rich.

As far as W2 benefits, there's vacation + holidays + sick time + continuing education that can mean two months of paid time out of the office annually. Add in disability, medical, dental. Add in retirement. Add in a small percentage going to a future severance package. Add in the extra bennies like parental leave, adoption assistance, or college reimbursement that are more common.

Now for contractor overhead, and in extra taxes. Add paying someone or yourself for the book keeping. Add business insurance. Assume some bad debts. Add paying a lawyer to review contracts. Assume some unpaid time between contracts, but maybe you use that as vacation.

Using 1099/hourly rate X 1000 = W2 salary is about break even whenever I've crunched the numbers for tech jobs. The numbers can be tilted in many ways. For example, if you don't take vacation, never get sick, a spouse covers medical, etc.

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Re: How to calculate if a new job will increase income?

Post by TropikThunder » Fri May 03, 2019 10:19 pm

ClevrChico wrote:
Fri May 03, 2019 9:12 pm
TropikThunder wrote:
Fri May 03, 2019 7:30 pm
ClevrChico wrote:
Fri May 03, 2019 7:24 pm
TropikThunder wrote:
Fri May 03, 2019 7:21 pm
ClevrChico wrote:
Fri May 03, 2019 5:41 pm
$60/hour/1099 = $60k/salary/w2 with full benefits
How are you calculating $60/hr only turns into $60,000 salary? That's only half of what he says he made last year.
Salary includes benefits. 1099 includes overhead.
I get that part, I'm asking where your numbers are coming from. $60/hr for him turned into $120,000 gross - $12,000 expenses -$9,000 employer share of FICA = $99,000. Where are you getting the $60,000 salary number from? Are you saying the benefits are worth more than $39,000? Is that an estimate or is this based on actual numbers somewhere?
It's a general rule of thumb that consultants use. That's assuming both 1099 and W2 are giving themselves a benefits package. It can be quite surprising until you spreadsheet it out. Some consultants are undercharging because they see the high hourly rates and think they're rich.

As far as W2 benefits, there's vacation + holidays + sick time + continuing education that can mean two months of paid time out of the office annually. Add in disability, medical, dental. Add in retirement. Add in a small percentage going to a future severance package. Add in the extra bennies like parental leave, adoption assistance, or college reimbursement that are more common.

Now for contractor overhead, and in extra taxes. Add paying someone or yourself for the book keeping. Add business insurance. Assume some bad debts. Add paying a lawyer to review contracts. Assume some unpaid time between contracts, but maybe you use that as vacation.

Using 1099/hourly rate X 1000 = W2 salary is about break even whenever I've crunched the numbers for tech jobs. The numbers can be tilted in many ways. For example, if you don't take vacation, never get sick, a spouse covers medical, etc.
Thanks for the explanation. :beer

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unclescrooge
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Re: How to calculate if a new job will increase income?

Post by unclescrooge » Fri May 03, 2019 10:40 pm

ClevrChico wrote:
Fri May 03, 2019 5:41 pm
Rule of thumb calculation:

$120k/1099 = $60/hour/1099

$60/hour/1099 = $60k/salary/w2 with full benefits

VA @ $83k > Contracting-converted-w2 @ $60k

The VA is most likely a pay increase.
So expenses are 50% ???

That sounds absurd.

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ClevrChico
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Re: How to calculate if a new job will increase income?

Post by ClevrChico » Fri May 03, 2019 11:48 pm

unclescrooge wrote:
Fri May 03, 2019 10:40 pm
ClevrChico wrote:
Fri May 03, 2019 5:41 pm
Rule of thumb calculation:

$120k/1099 = $60/hour/1099

$60/hour/1099 = $60k/salary/w2 with full benefits

VA @ $83k > Contracting-converted-w2 @ $60k

The VA is most likely a pay increase.
So expenses are 50% ???

That sounds absurd.
Uncle Scrooge, did you include benefits?

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unclescrooge
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Re: How to calculate if a new job will increase income?

Post by unclescrooge » Sat May 04, 2019 1:19 am

ClevrChico wrote:
Fri May 03, 2019 11:48 pm
unclescrooge wrote:
Fri May 03, 2019 10:40 pm
ClevrChico wrote:
Fri May 03, 2019 5:41 pm
Rule of thumb calculation:

$120k/1099 = $60/hour/1099

$60/hour/1099 = $60k/salary/w2 with full benefits

VA @ $83k > Contracting-converted-w2 @ $60k

The VA is most likely a pay increase.
So expenses are 50% ???

That sounds absurd.
Uncle Scrooge, did you include benefits?
Did you include tax benefits from the changes in the recent tax laws, namely the 20% QBI deduction?

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Re: How to calculate if a new job will increase income?

Post by BarbBrooklyn » Sat May 04, 2019 1:57 am

Do you carry malpractice insurance? Will you need to if employed by the VA, or is there reimbursement for that?

Are you currently itinerant? Factor in depreciation on your vehicle and the wear and tear on your body.

Are there built in salary increases in the VA job?
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

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tomwood
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Re: How to calculate if a new job will increase income?

Post by tomwood » Sat May 04, 2019 3:07 pm

BarbBrooklyn wrote:
Sat May 04, 2019 1:57 am
Do you carry malpractice insurance? Will you need to if employed by the VA, or is there reimbursement for that?

Are you currently itinerant? Factor in depreciation on your vehicle and the wear and tear on your body.

Are there built in salary increases in the VA job?
Yes I have insurance but costs are low. PTs don’t have many malpractice cases. There is reimbursement.

Yes I currently travel for work between a few locations.

The salary increases to kee up with the cost of inflation and there’s slight room to increase my salary by performance.

JBTX
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Re: How to calculate if a new job will increase income?

Post by JBTX » Sat May 04, 2019 5:28 pm

Self employment :

Gross $120k
Expenses ($12k)
Employer Self employment taxes approx ($6k). ($100k times 6% approx net of tax benefit)
QBI tax benefit +$2k (guess-$80k taxable income times 20% times 12% tax rate)
Less Additional health insurance???

$102k, but I'm really skeptical that you will only save $500 a year on health insurance. Also, there is some cost to liability / professional error insurance.

Employment:

- salary 83k
- value of pension - this is a real wild card and is not trivial. If you really can earn $1 million in annuity value pension over 30 years, that is about 40% of cumulative earnings at today's dollars), but I don't know if your numbers are present day or future value numbers. $255k amounts to 10% of cumulative earnings. I just dont how your pension works, and whether the dollars stated are current inflation adjusted dollars or future dollars.

So your pension could be somewhere between $10k and $32k per year. Understanding how that works and the value of it is probably by far the most important variable.

Also, as an employee you get paid vacation and holidays. I don't assume you get any as contractor. And I don't know if with $120k you are taking full vacation and holidays. I'm guessing you probably will get approx 240 hrs of paid vacation (out of 2080 hrs) as an employee? Are you currently taking off 240 hrs a year?

rgs92
Posts: 2440
Joined: Mon Mar 02, 2009 8:00 pm

Re: How to calculate if a new job will increase income?

Post by rgs92 » Sat May 04, 2019 7:58 pm

I would take the Federal Gov't job in a heartbeat. A gov't job, especially a Federal one, has the incredible gift of job security. That outweighs everything, especially as you get older. There is no need for any cost/benefit analysis when that intangible is factored in.
And this opportunity may never pass your way again. Go for it.

Topic Author
tomwood
Posts: 71
Joined: Mon Dec 10, 2018 9:34 am

Re: How to calculate if a new job will increase income?

Post by tomwood » Mon May 06, 2019 12:33 pm

JBTX wrote:
Sat May 04, 2019 5:28 pm
Self employment :

Gross $120k
Expenses ($12k)
Employer Self employment taxes approx ($6k). ($100k times 6% approx net of tax benefit)
QBI tax benefit +$2k (guess-$80k taxable income times 20% times 12% tax rate)
Less Additional health insurance???

$102k, but I'm really skeptical that you will only save $500 a year on health insurance. Also, there is some cost to liability / professional error insurance.

Employment:

- salary 83k
- value of pension - this is a real wild card and is not trivial. If you really can earn $1 million in annuity value pension over 30 years, that is about 40% of cumulative earnings at today's dollars), but I don't know if your numbers are present day or future value numbers. $255k amounts to 10% of cumulative earnings. I just dont how your pension works, and whether the dollars stated are current inflation adjusted dollars or future dollars.

So your pension could be somewhere between $10k and $32k per year. Understanding how that works and the value of it is probably by far the most important variable.

Also, as an employee you get paid vacation and holidays. I don't assume you get any as contractor. And I don't know if with $120k you are taking full vacation and holidays. I'm guessing you probably will get approx 240 hrs of paid vacation (out of 2080 hrs) as an employee? Are you currently taking off 240 hrs a year?
My job helps with my medical insurance but my $500 might not wrong, I will check again.

My annuity calculation is not factoring the next 20-30 years of inflation. How would I account for that?

240 hours of time off per year? I don’t reach half that lol

JBTX
Posts: 5026
Joined: Wed Jul 26, 2017 12:46 pm

Re: How to calculate if a new job will increase income?

Post by JBTX » Mon May 06, 2019 1:23 pm

tomwood wrote:
Mon May 06, 2019 12:33 pm
JBTX wrote:
Sat May 04, 2019 5:28 pm
Self employment :

Gross $120k
Expenses ($12k)
Employer Self employment taxes approx ($6k). ($100k times 6% approx net of tax benefit)
QBI tax benefit +$2k (guess-$80k taxable income times 20% times 12% tax rate)
Less Additional health insurance???

$102k, but I'm really skeptical that you will only save $500 a year on health insurance. Also, there is some cost to liability / professional error insurance.

Employment:

- salary 83k
- value of pension - this is a real wild card and is not trivial. If you really can earn $1 million in annuity value pension over 30 years, that is about 40% of cumulative earnings at today's dollars), but I don't know if your numbers are present day or future value numbers. $255k amounts to 10% of cumulative earnings. I just dont how your pension works, and whether the dollars stated are current inflation adjusted dollars or future dollars.

So your pension could be somewhere between $10k and $32k per year. Understanding how that works and the value of it is probably by far the most important variable.

Also, as an employee you get paid vacation and holidays. I don't assume you get any as contractor. And I don't know if with $120k you are taking full vacation and holidays. I'm guessing you probably will get approx 240 hrs of paid vacation (out of 2080 hrs) as an employee? Are you currently taking off 240 hrs a year?
My job helps with my medical insurance but my $500 might not wrong, I will check again.

My annuity calculation is not factoring the next 20-30 years of inflation. How would I account for that?

240 hours of time off per year? I don’t reach half that lol
But in the fed job you will get paid vacation and holidays. If yiu don't take them it should accrue, so it is a benefit with value you need to factor in.

TravelforFun
Posts: 1738
Joined: Tue Dec 04, 2012 11:05 pm

Re: How to calculate if a new job will increase income?

Post by TravelforFun » Mon May 06, 2019 2:02 pm

OP is working part time now and the new job is full time so comparing annual income between the two jobs is not apple to apple. A net hourly rate is more appropriate.

Current net hourly rate = (Annual income - annual expenses and taxes) / number of hours worked.
New net hourly rate = (Annual income + annual benefits) / 2,080

TravelforFun

csm
Posts: 213
Joined: Sun Mar 27, 2016 7:52 am

Re: How to calculate if a new job will increase income?

Post by csm » Mon May 06, 2019 2:38 pm

TravelforFun wrote:
Mon May 06, 2019 2:02 pm
OP is working part time now and the new job is full time so comparing annual income between the two jobs is not apple to apple.
Are you sure OP is working part time? He wrote, "I am a PT ... " which I read to say that he is a physical therapist.

rgs92 wrote:
Sat May 04, 2019 7:58 pm
I would take the Federal Gov't job in a heartbeat. A gov't job, especially a Federal one, has the incredible gift of job security. That outweighs everything, especially as you get older. There is no need for any cost/benefit analysis when that intangible is factored in.
And this opportunity may never pass your way again. Go for it.
^This.

A defined benefit pension plan, inflation-adjusted for life is priceless. Plus good health benefits. Plus paid vacation, paid sick leave, paid holidays. And most likely, fixed 40 hours per week in a secure job. (I assume federal pensions are still defined benefit?)

Topic Author
tomwood
Posts: 71
Joined: Mon Dec 10, 2018 9:34 am

Re: How to calculate if a new job will increase income?

Post by tomwood » Mon May 06, 2019 6:24 pm

TravelforFun wrote:
Mon May 06, 2019 2:02 pm
OP is working part time now and the new job is full time so comparing annual income between the two jobs is not apple to apple. A net hourly rate is more appropriate.

Current net hourly rate = (Annual income - annual expenses and taxes) / number of hours worked.
New net hourly rate = (Annual income + annual benefits) / 2,080

TravelforFun
I’m working full time now. I don’t understand where I might have typed part time work, but if I did, that was an error. My question is one which will hopefully help me calculate federal benefits into a monetary amount to compare to my current income.

Topic Author
tomwood
Posts: 71
Joined: Mon Dec 10, 2018 9:34 am

Re: How to calculate if a new job will increase income?

Post by tomwood » Mon May 06, 2019 6:35 pm

csm wrote:
Mon May 06, 2019 2:38 pm
TravelforFun wrote:
Mon May 06, 2019 2:02 pm
OP is working part time now and the new job is full time so comparing annual income between the two jobs is not apple to apple.
Are you sure OP is working part time? He wrote, "I am a PT ... " which I read to say that he is a physical therapist.

Good of you to notice my confusing sentence csm. You’re correct PT is intended to stand for Physical Therapist



csm wrote:
Mon May 06, 2019 2:38 pm
rgs92 wrote:
Sat May 04, 2019 7:58 pm
I would take the Federal Gov't job in a heartbeat. A gov't job, especially a Federal one, has the incredible gift of job security. That outweighs everything, especially as you get older. There is no need for any cost/benefit analysis when that intangible is factored in.
And this opportunity may never pass your way again. Go for it.
^This.

A defined benefit pension plan, inflation-adjusted for life is priceless. Plus good health benefits. Plus paid vacation, paid sick leave, paid holidays. And most likely, fixed 40 hours per week in a secure job. (I assume federal pensions are still defined benefit?)
The current federal VA pension is proportional to year’s worked. Which makes it difficult for me to calculate. 20 years of work equals a pension that’s 20% of the highest 3 years of income. Working for 30 years results in 30% of the highest 3 years. It is inflation adjusted.
If the salary is the same for both jobs then the federal benefits clearly tips the scales. But that can’t always be true for a federal job offering less salary. For example a $500k/year private sector job is better than $50k/year federal job. I know the gap is smaller in my situation so can you tell me how you’re sure the federal benefits are tipping the scale in my specific case? Thank you

delamer
Posts: 7715
Joined: Tue Feb 08, 2011 6:13 pm

Re: How to calculate if a new job will increase income?

Post by delamer » Mon May 06, 2019 6:50 pm

tomwood wrote:
Fri May 03, 2019 9:28 am
delamer wrote:
Thu May 02, 2019 6:15 pm
You will have to make a mandatory contribution to the FERS pension — I think it is 4.4% of gross, but you should check. Those contributions are refundable if you leave federal service pre-pension.

You’ll receive an automatic 1% contribution to your TSP [federal 401(k)] from your agency, whether you make any contributions or not. If you do contribute 5% to the TSP, you’ll receive another 4% in match (the maximum).
For my calculations, should I count this as canceling each other out? I won’t count the 4.4% gross contribution but also won’t count the 5% match. Does that work?
Mostly. But remember that the 4.4% cost is mandatory, but you only get the 4% match if you voluntarily contribute 5% to the TSP.

You get a 1% contribution “match” even if you contribute nothing.

I get that you want to assign a value to the pension, but it isn’t easy to do. Another point is that if you are currently contributing to an IRA or 401(k) based on your self-employment income, you’ll be able to reduce that knowing that you’ll have the pension.

You’ll get the equivalent of about 4 weeks of paid vacation due to annual leave and holidays. How does that compare to the hours you work now?

Topic Author
tomwood
Posts: 71
Joined: Mon Dec 10, 2018 9:34 am

Re: How to calculate if a new job will increase income?

Post by tomwood » Mon May 06, 2019 10:05 pm

delamer wrote:
Fri May 03, 2019 11:42 am
tomwood wrote:
Fri May 03, 2019 9:40 am
delamer wrote:
Thu May 02, 2019 6:15 pm
I know that you have self-employment expenses that are tax deductible. So I presume you’d subtract your tax savings attributable to those expenses from your actual expenses to see what your net expenses are. And then subtract net expenses from gross, and subtract 1/2 of payroll taxes, to get a rough salary.
If I calculated this correctly, and hopefully I did. My net expenses are $12k
So you are at $98K. Then subtract the employer portion of payroll taxes, roughly $7,500. So $92,000 is close to the equivalent of a gross salary for you.

Then add in the 1% TSP match to the government salary. Then subtract the 4.4% for the mandatory FERS contribution.

For the pension benefit, figure out how much you’d need to have saved to buy an equivalent annuity.
Are there any major tax deductions a 1099 often can claim which won’t be available for W2?

And do I need to figure out a way to factor inflation for my annuity calculation?

Topic Author
tomwood
Posts: 71
Joined: Mon Dec 10, 2018 9:34 am

Re: How to calculate if a new job will increase income?

Post by tomwood » Mon May 06, 2019 10:06 pm

delamer wrote:
Mon May 06, 2019 6:50 pm

You’ll get the equivalent of about 4 weeks of paid vacation due to annual leave and holidays. How does that compare to the hours you work now?
A nice perk

Topic Author
tomwood
Posts: 71
Joined: Mon Dec 10, 2018 9:34 am

Re: How to calculate if a new job will increase income?

Post by tomwood » Tue May 07, 2019 12:15 pm

rgs92 wrote:
Sat May 04, 2019 7:58 pm
I would take the Federal Gov't job in a heartbeat. A gov't job, especially a Federal one, has the incredible gift of job security. That outweighs everything, especially as you get older. There is no need for any cost/benefit analysis when that intangible is factored in.
And this opportunity may never pass your way again. Go for it.
Thank you but does the salary at either job not matter?

delamer
Posts: 7715
Joined: Tue Feb 08, 2011 6:13 pm

Re: How to calculate if a new job will increase income?

Post by delamer » Tue May 07, 2019 1:43 pm

tomwood wrote:
Mon May 06, 2019 10:05 pm
delamer wrote:
Fri May 03, 2019 11:42 am
tomwood wrote:
Fri May 03, 2019 9:40 am
delamer wrote:
Thu May 02, 2019 6:15 pm
I know that you have self-employment expenses that are tax deductible. So I presume you’d subtract your tax savings attributable to those expenses from your actual expenses to see what your net expenses are. And then subtract net expenses from gross, and subtract 1/2 of payroll taxes, to get a rough salary.
If I calculated this correctly, and hopefully I did. My net expenses are $12k
So you are at $98K. Then subtract the employer portion of payroll taxes, roughly $7,500. So $92,000 is close to the equivalent of a gross salary for you.

Then add in the 1% TSP match to the government salary. Then subtract the 4.4% for the mandatory FERS contribution.

For the pension benefit, figure out how much you’d need to have saved to buy an equivalent annuity.
Are there any major tax deductions a 1099 often can claim which won’t be available for W2?

And do I need to figure out a way to factor inflation for my annuity calculation?
I am no expert on self-employment. But you can’t take mileage for your commute to a W-2 job.

You can get estimates for an inflation adjusted annuity.

Topic Author
tomwood
Posts: 71
Joined: Mon Dec 10, 2018 9:34 am

Re: How to calculate if a new job will increase income?

Post by tomwood » Tue May 07, 2019 9:38 pm

delamer wrote:
Tue May 07, 2019 1:43 pm

I am no expert on self-employment. But you can’t take mileage for your commute to a W-2 job.

You can get estimates for an inflation adjusted annuity.
Which potion of inflation am I to estimate? Do I try to adjust for inflation over the next 20-30 years until I’d retire and hypothetically purchase an annuity if I stay in the private sector? Or am I estimating the need for an annuity payout to increase annually to adjust for inflation?
If you’d be willing to help me estimate this inflation id be thankful. Or maybe you can direct me to a website to help?

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