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Working as a 1099 contractor

For the past 4 months I've worked for a temp agency for a company that is in growth mode.

The company now does not want to pay the additional fee for agency, and wants to have me convert to their 1099 contractor.

I've always been an employee, and this is a great opportunity for me to stay working, and yet have flexibility to provide the work needed.   I'm not familiar with what my pay I'll lose to taxes if I don't convert at the correct rate.  I've been told that I'll have to figure in an addtional 7% to cover taxes for the Federal portion.  I don't know about California though.

Can anyone provide some ideas on how to figure out my rate in order to basically continue the same rate of pay.  Example of now earning $40/hour through the agency, what should I increase the rate to if I am 1099'd.

What all should I consider on a conversion?

Thanks.

Answers

Sara Voight
Title: Controller
Company: Critical Signal Technologies, Inc
(Controller, Critical Signal Technologies, Inc) |

I can't speak easily to the independent contractor status, but I think you will be required to report/remit quarterly and there should be an associated worksheet to help calculate how much you will owe in taxes. This should help you plan for the financial impact of the change. Check both the federal and state websites for these calculations.

Possibly more important, is whether you really will be considered an independent contractor. The IRS is cracking down on distinctions and your new company could get hit with an audit and very large penalties/fees. Who will control your schedule? Who controls how you complete your work (where, whose resources)? And I have to admit, I am always curious as to why a company wants someone enough to bring them on, but not as an employee.

Brian Barnes
Title: Managing Director
Company: TriKon TeKnology Group
(Managing Director, TriKon TeKnology Group) |

Converting to a 1099 can be both complex and rewarding , if done correctly.
My first suggestion would be to consider your role, your years of experience, what value this will provide and your competition. This to me far outweighs the tax up-charge you seek. Secondly, my experience has been that most 1099 employees do far better than salaried employees if they set themselves up appropriately.

To help answer your question, consider the following: For example, will you set yourself up as a corporation? If so, what type, C-Corp, S-Corp, L.L.C, etc? Will you file taxes monthly or yearly?, this will help with cash flow...,What type of expenses will you incur or are allowed in each scenario? How will you pay yourself? payroll or company profit? What type of retirement plan do you have , or will you have? These are just a few questions you need to ask yourself as they will impact every component of your new status.

Your hourly rate only determines your top line revenue, from there, you will need guidance from your accountant to truly get a handle on the tax implications involved when being a 1099. Simply converting to an hourly rate will not give you the answer you want. I hope this helps.

John P. Hart
Title: Vice Pres - CFO
Company: Nova Pressroom Products, LLC
(Vice Pres - CFO, Nova Pressroom Products, LLC) |

1. You'll have to pay both sides of the FICA and Medicare. (I don't know CA tax consequences, but likely the same - or worse!)

2. Good question from Sara about the 1099 status. OK for independent sales folks; doesn't t qualify for in-office staff with specified duties, set hours, "tools" provided, report/responsibility status, etc. IRS guidelines very clear on this, and yes, the Feds frequently look for abuses.

3. Are you and the company sure that 1099 status isn't in conflict with the temp firm's agreements? Both with you and the company? Better re-read agreements to make sure that the temp firm can't come back at you or the company.

My two-bits

(Agent, JKS Solutions, Inc.) |

If you are an executive level, you will need to seek tax advice from a qualified professional to discuss the options related to business entity and types of insurance you will need if you become a 1099 contractor. You can only achieve independent contractor status for your State if you meet your State's I/C rules first.

You aren't going to find qualified advice on this site or any other, and for IRS non disclosure rules you should not be providing your information here for public consumption.

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