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compare line rates between IC and employee? - help in computing this vs employee pay

Posted: Aug 19, 2014

Can someone please tell me how to compare line rates between IC and employee? I know IC pays less due to taxes and social security not paid by employer, but if someone could tell me what 8 cpl as an IC really pays, I would really appreciate it. TIA.

IC pay - ICMT

[ In Reply To ..]
IC doesn't pay less. It used to actually pay a higher line rate. Now pretty much everyone is paying the same rate across the board.

You don't really pay any higher taxes because you're a contractor. Using rounded numbers you pay 15% for SS and Medicare (called "self employment tax") and you are given a credit for 50% of that on your tax return, so you're paying 7.5%. If you're an employee, you pay 7.5 and your employer pays 7.5%. IOW, despite what many will scream at you, it's a wash.

You are also able to claim a lot of deductions thus lowering your tax burden.

So in reality, if you get paid 8 cpl for IC, your check will reflect every penny you've earned.

Depending on your living situation (married as opposed to single, what tax bracket you're in, etc) you could end up owing very little in actual taxes.

When I was married, I had my husband drop one deduction and that covered what I owed in taxes. Filing joint, I never paid anything out of my checks except to the family budget. We had 4 kids, always got a refund. Now, I'm single. I keep an employee position and an IC position. I make sure to have enough taken out of my employee check that I dont have to worry about owing anything on the IC funds.

It really is not a big deal. Most of us aren't making a killing in MT to where the taxes are a huge burden. I made $68,000 last year, do not own a home, and got a $2500 refund.

So take the IC position, put 10% of every check in a savings account and remember to save your receipts for EVERYTHING :)

Disclaimer: Taking a position as an IC means you're becoming a business owner. It is always good judgment to arm yourself with knowledge. A visit to an accountant is an excellent choice. I'm not an accountant. I've been an MT for 32 years and know how to get every penny I can.

IC-thank you so much for this very thorough explanation - n.m.

[ In Reply To ..]
.

The accountant fee can be your first tax write-off - nm

[ In Reply To ..]
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