Working as Contract worker as own business
 

I interviewed for a job. They told me it's Contract work. Then told me I would have to apply for my own business license. They will pay me and i will be responsible for my taxes and SS and Medicare, etc.
The IRS frowns on people doing things that they set rules on differently.
has anyone done this??
my husband and I usually file jointly and i'm still paying back SS for early filing (i was being laid off) and i'd already made too much the first qtr of that year and have been paying SS back since then. They stop taking money out of my cks next October.

Not sure of current IRS regs but what they are doing is sub-contracting work out to you. They don't have to pay matching SS or carry workmen's comp so it saves them $$. You will simply have to file under your SS# and then on your tax return, you will calculate the correct SS, etc. It may be that you have to pay this in quarterly...as I said, rules may have changed...they are always doing that! LOL The best thing to do is if you take the job, consult an accountant for current regs. If you get a business license, it depends on the state you are in and their rules but you can also file for an IRS Tax ID#. There is so much paperwork to do!!

If you do take the job, the company will send you a Form 1099 at the end of the year rather than a W-2. This is what you will use to file taxes on your income.

When I did contract work years ago, I found that adding in my required tax contribution to SS, etc., raised my overall tax rate to almost 50% of gross income. When you are calculating profit from this deal, I would subtract at least 40% for taxes (including income tax) to get a realistic estimate of your net profit. You might be better off taking a job that pays a lot less but is hourly or salaried rather than contract. (If I am remembering correctly, the extra taxes I paid amounted to about 15% of gross income. Add this percentage to whatever your usual income tax percentage is.)

Edit: OK, I did a little Google research and the above is not really accurate. It's true that in my case my net was only about 50% of gross, but that was being our tax bracket at the time was high because of my husband's work.

Basically you can estimate the self-employment tax as 15% of gross income. If you are in an 18% income tax bracket, then you would add 15% to 18% to get an estimated tax liability of 33% on your gross income.

When you are employed by someone else, they pay about half of the 15% into SS/Medicare and you are paying about half. When you are self-employed, you have to pay in both halves.

Ok, let me get this straight....you would be doing contract work using your own supplies in your own space and delivering your product to them? Or would you be using their supplies and workspace?
I can't imagine what kind of job would entail getting your own business license.
This is a head scratcher, for sure.

Under the rules, you can only be a contractor if you use your own tools, supplies, etc. If you use their tools, etc. you are considered an employee of their company. This is something that some employers try to get around but it is stated very clearly in the regs. I was CFO of a manufacturing company where we had piecework done. Before I went to work for them, they treated them as contractors but after informing them of the regs, we changed them to employees of the company since they used all our tools, supplies, etc.

Probably, the reason they are requiring a business license is that it covers them in case of liability, etc. and they can be protected under the tax laws.

Edited to add: The only exception to these rules is for Sales/Commissions type work. That's a whole other set of rules!!

unless its a High $$ paying contract job I cant imagine it would be worth it.. Have you looked into all the fees that are required for filing to set up a company.. ?

Also, if you are not yet full retirement age (usually 66), then you do not want to make much over $14,000 during the year; otherwise you will lose $1 in SS benefits for every $2 you earn above that amount.

Nanamom is correct, they can 1099 you and make you pay both halves of the SS and Medicare. One thing I found out a couple of years ago is that a lot of companies were calling it "contracting" just to get out of those taxes. Regs say that if you are acting like an employee, you are an employee. You know the old saying, "walks like a duck, quacks like a duck, its a duck". This was in the instance of people coming to work on a regular basis, using the companies equipment to perform the job, and going home at the end of the day. There is a lot of contracting going on out there. Just make sure you are fully aware of the details before you get involved. If this is one of those work at home things you see/hear about all the time, PLEASE check them out throughly. There are some unscrupulous people out there. In one instance I know of, a lady bought the supplies from the company, made up the product, and sent it in. They said the workmanship was not up to their standards. She was out not only the income, but the dollars spent for the supplies. Did they care? NO!! They probobly made a profit from the supplies they sold her. Now, I am not saying they are all swindlers, but you need to make sure you know fully what you are getting into. Good Luck. Keep us posted.

One thing I don't understand is why you would have to get a business license and set up as a company. An independent contract worker does not need to do that.

I'm thinking of telling them no thanks. I'm not good at doing things that may not be "cricket". I'd work in their office with their computer, etc. It's just a tax filing thing and i think i'd come out on the wrong end of the stick. Social Security is taking enough money from me.
but i do need a job. sigh.

Also, have you noticed how the schools are now using contractor instead of employees. I always wondered how it would be cheeper to allow an employee to retire, then hire them back as a contractor. Its because of the savings in SS and MED taxes, as well as workers comp. You can look back at you and DH paystubs. What ever you paid in is what your employer paid in, as well. It is not a small number. And the government doesn't care that you are out that money, they want their "fair" share and will add penalties and interest making that number even larger if you don't pay on time. If you will owe the government more than $1000 you could be required to make quarterly payments, as well. This is NOT tax advise in any way shape or form, make sure you check out all the details before getting too far into this. If they are a really good, they may even be able to tell you. OK, I 'm off my horse.

You need to consider the state laws in this instance also. Being an independent contractor has specific federal and state rules, I think there are 21 in IL.

I just talked to my hubby's BIL who is very business savy. It cost money to file a business license and all in all, it doesn't sound like something I'm willing to tackle. So i'm bowing out of that particular job hunt.
thanks all. CC

If they contract the work out they don't have to pay you any kind of medical benefits and they won't contribute to your 401K either so it really saves the companies a lot of money if they can "contract" out a lot of they're higher paying positions. I wouldn't do it, it will cost you a lot of money to get setup us a business and then your opening up both you and your husband to a lot more scrutiny by the IRS which no one wants.

When I first started working in the US one day at work I got served to go to tax court by the IRS. Had no idea what it was about, there was a woman behind a stack a mile high of folders. Judge asked me why the IRS had no tax records of me before 1997 I told him I'm a Canadian citizen that recently started to work in the US. He looked at her she nodded he thanked me and told me to have a nice day. I learned real quick these are not people you want to mess around with.

By chance would the company be Aspire? I saw that on the news a few nights ago and was intrigued. So I read the website VERY carefully before applying. They do point out, many times, that you should hire your own accountant. And they give you a reference for an attorney for advice on the incorporation. Not only do you have to invest in your own supplies, but uptraining is on your own time and they charge a fee of $19.95 per pay period. They state that your 'payouts' come to about 10-13 dollars per hour. Working from home at your own hourly schedule is nice, but the true income is very low.

Nativetexan, I was thinking earlier if they want you to get a business license, just go into business for yourself and compete with them.
I used to have a tax man that came to the house and did ours....you could do the same with no grief.
Good luck finding a job or making one.

The Business license is a smoke screen the company thinks will help it getting around the independent contractor vis employee. The IRS has a hole list of what makes an independent contractor vis an employee and not anywhere on the list does it mention a business license. It talks about who determins what is to done and when and for how much. It is correct that as an employee the employer will pay have your SS and Medicare and as an independent contractor you pay the hole thing. But also remember that as an independent contractory there will be no Workmans Comp, no Sate disability and no unemployment. But bottom line is if you need the job you have no choice. Good luck.

Bear in mind that while as an independent contractor, you have to pay more of your own taxes, you also get to write off any business expenses, which can more than even things out. I agree with cpcarolyn, though, that requiring a business license is to benefit the company's case that you are not a regular employee and not anything that benefits you. If you would be working in their office, with their equipment, presumably at set hours, it seems to me that you would not meet the criteria of independent contractor, and the company should know that. Just my two cents!

I work by contract. I work through a group called MBO Partners which is for independant contractors and small businesses. You should at least check out the website before you give up. You can find them at: http://www.mbopartners.com/#home

I know you have to be careful with social security and making TOO much money. I hope this helps.

This company handles HOA fees for homeowners. I'd make only $11.00 per hour and it's not worth all the trouble and stress for that. I'm one of those who get caught if i try anything the least underhanded. I'm not willing to pay a lot to set up my business license nor tackle tax problems. I"m just able to file our joint taxes as it is. So I"m out of the running for the job, i called them this morning.
I just applied for a job with the City here that is supposed to be Tues, Wed and Fridays. unless you need to cover for others, then it's 40 hours or more and evenings once in awhile. This is very close to home, so it may work out. It pays $16.00 up to $23.00 with benefits. If they hire me anyway.

As a person who ended up tearing my hair out over the complications caused by just filing for a sales tax number, I am going to say DON'T DO IT. It is worth your while to keep looking for a job where they pay you, and all the other people who get to tap into your paycheck. Trust me, unless you want to be knee deep in piddly....forget them.

My daughter worked at a Kiosk and the same thing took place. She made next to no money after everything was paid for. Unbelievable. Slave labor for the company.

I am a CPA and work with taxes a bit. One thing to remember is if they set your hours, you are an employee, not a self employed contractor. A decade ago, I was laid off at Christmas and applied at Jackson Hewitt to do tax work. They wanted to pay $6 an hour and if I stayed until April 15th, I would get a percentage of all the returns I had completed. I was in desperate need of a job, but it seemed like such a poor way to treat the employees, I did not take the job. I ended up at Accountemps and was very happy there until I got a real job. Good luck to you!