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IC pay - educated information - wimt

Posted: Feb 01, 2012

Looking for educated information, not just guesses. As an example, if you earn on average $20/hour as an IC where you have to pay all your own taxes, does anybody know about what that averages to as an hourly paid employee? I'm trying to decide on taking a differnt job in an office outside of the MT field where there would be a pay cut of possibly $6/hour compared to what I make now. Appreciate any information. Thanks.

It depends on several factors. sm - oldtimer

[ In Reply To ..]
On average ICs pay 20-23% of their income on taxes so deduct 20% and you get $16 an hour. Did you pay for health insurance when you were an IC? Do you get benefits with the new job?

Thank you oldtimer - wimt

[ In Reply To ..]
No benefits paid for as an IC and no benefits at this other part-time job that I am considering. I was thinking my taxes were about 35% of income, but I don't why that figure is in my head. I would imagine it varies by state so I guess I could just ask my tax preparer. I really want a full-time job with benefits, but so far no luck with that so I have to weigh all my options here and consider whether just getting back into the normal workforce would be beneficial for the future, even though it would be a pay cut. It's all just making my head spin. There are so many different scenarios to consider.

You only pay 7.65 percent more than you do now - Happy MT Robin

[ In Reply To ..]
The only ADDITIONAL tax that you pay is the employer's portion of the FICA/SS tax. You already pay federal withholding and the employee portion of the FICA tax. So as an IC, you are only shelling out 7.65% MORE than what you are as an employee.

The disadvantage is that you have to pay that up front through the year when you make your tax payments. You deduct it on your 1040 at the end of the year, so it helps to even out a little bit. You also get more for write offs for your house, internet, phone, etc., as an IC than you do as an employee. As an example, when I did last year's taxes I used the same sets of numbers and using the same home office deductions - as an employee I would have owed $550 and as a contractor I got $36 back.

As an IC you don't have any benefits, unemployment, etc., but theoretically you should have a lot more flexibility than you do as an employee.

Use your own personal tax rate ... (sm) - My2c

[ In Reply To ..]
I would just add that it's better to use your own tax rate rather than an average, as it could vary tremendously. And since everybody's pay, cost of living, benefit situation, tax rate, etc. are different, no two are alike. So you really have to calculate out your own individual costs and see what's best for you. For myself, I pay 30% of my income quarterly because of our tax rate, and sometimes I end up owing more, depending on whether I contribute to my SEP or not, how much was earned and taken out in my husband's checks and so forth.

Good luck to you. It's definitely a complicated calculation for sure.

Excellent advice. nm - oldtimer

[ In Reply To ..]
.

IC Pay - LeeLee

[ In Reply To ..]
You can go to IRs site and pull up tax schedule and it will state your exact income tax rate (prior to any deductions, which obviously vary from person to person). Another source is to use your 2010 1040-tax form. Check out your gross income, less any taxes paid for state and local (you get the idea)and any other required tax deductions. When you divide the approximate hours worked, this will give you a very, very good idea of what you net per hour, week, month; however, you choose to break it down.

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