1099 Independent Contractor Help?

[PierreBear]

Any PSers who know the ins and outs of being a 1099 independent contractor and how to best set your hourly wage? I have a general understanding that becoming a 1099 contractor will require you to pay more taxes but I wasn't sure what would be a fair wage to be paid? I'm currently a W2 employee but might take on a project on the side and wasn't sure if I should take my currently salary rate and add a certain percentage to it to offset the additional taxes/expenses incurred? Or anything else to consider? Appreciate the help if someone has been in this situation!

 

[TooPatient]

The rate would depend on what you are doing.

The taxes are $$$ difference. You would do best to read up on tax stuff or (even better) talk with a tax advisor. You may need to keep logs on driving to use mileage deductions. Home office deductions can be great but also have requirements to meet. If you can figure out the expenses part, it might not be bad. I never got good at that side of thing so went from getting a refund to owing a few thousand dollars a year.

Definitely take taxes (plus lack of sick time, health insurance, etc) into account when setting a rate. That said, there can be different levels of tax rates that you want to watch for. My aunt got $20/week raise and got bumped up to a higher rate. Costs more than if she hadn't gotten the raise.

 

[Karl_K]

Find out the common charge for your area for that type of work charge that.
You will have to pay both parts of the payroll tax of 15.3%.
Depending on the amount you may have to make quarterly tax payments for both state and federal.

The cost of errors and emissions as well as general liability insurance may make it unprofitable for small projects.
Talk to your insurance agent as you can often get a rider on your home owners to cover it a lot cheaper than standalone insurance.

It will cost more to have your taxes done as the paperwork is more involved.

If you use a portion of your house exclusively for work you can deduct a percentage of some household expenses from your income.
The word exclusively is very important. Even if you use it only for a few months in some cases you can still deduct.
If you cant reserve a room for your office I recommend having some kind of partition to separate your office from the rest of the room.
Many people use back to back book cases for this.
If you get audited you will need to take pictures showing a clearly defined office area.
Not having it clearly defined trips up many people when they are audited.

 

[FinleysMom]

My understanding of home office deductions is that they impact the cost basis of the house. Consult with an accountant who knows these things.

FM

 

[PierreBear]

Thanks for all the input thus far. I should clarify that it might only be 10 hours a month, working from home, and the company would provide assets such as computer etc needed for the role. Thus, I don't forsee any material deductible business expenses. Given this information, it seems like a fair wage would be my salary rate + 8-10% increase to offset the additional taxes? Or is this just too simplistic of a view? If I was working full time as a 1099 contractor, it is definitely more involved and I think I would need to consult a tax expert. But in this current situation, is the true question just asking myself, is it worth getting paid $X after taxes for working a few extra hours a month?

 

[Karl_K]

Thanks for all the input thus far. I should clarify that it might only be 10 hours a month, working from home, and the company would provide assets such as computer etc needed for the role. Thus, I don't forsee any material deductible business expenses. Given this information, it seems like a fair wage would be my salary rate + 8-10% increase to offset the additional taxes? Or is this just too simplistic of a view? If I was working full time as a 1099 contractor, it is definitely more involved and I think I would need to consult a tax expert. But in this current situation, is the true question just asking myself, is it worth getting paid $X after taxes for working a few extra hours a month?

Charge the going rate, dont sell yourself short.
With these kinds of deals they are often counting on people selling themselves short to get lower cost help.
If it is in the same industry as your day job check the policies and paperwork you signed for your day job.
More than likely there is something in there about working for competitors.
It is not worth getting fired and possible sued by your primary employer.

A rule of thumb is that a full time employee costs a company 3x their base rate in total expenses.
So if they can get you at 1.25x that is a steal for them.

 

[Missy]

Hi PB I have only ever worked as an independent contractor. And yes you pay a lot more in taxes than if you were an employee. You received useful info above and I would only add ask for more than you think they will give so you have a negotiating point from where to compromise. They will want to pay you as little as you will take and don't really care that a 1099 is not favorable for you vs employee so keep that in mind and ask for a bit more that you are willing to accept. To increase your chances of fair reimbursement. And because you are only part time for them they can afford more per hour than if you were a full time 1099.

Good luck!