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difference between IC and employee? - mtpa

Posted: Nov 19, 2014

What's the difference between IC and employee? Thanks.

IC versus employee - anon

[ In Reply To ..]
As an independent contractor, you are for all tax purposes self employed. Being self employed means you pay all of the Social Security tax and all of the Medicare tax in addition to income tax. This pretty much doubles your Social Security and Medicare tax burden. It also means you have no benefits, no access to any employer sponsored and/or subsidized benefits. You only get paid for the work done. You have no unemployment compensation. If you choose to work as IC status, be aware that they cannot tell you what schedule to work, cannot set and/or enforce production standards, i.e., lines per hour. They can give a turnaround time, like a 24-hour turnaround time, which means that you can work in the morning, afternoon or evening to meet the turnaround, but you choose when you want to work to get that done. If they try to set days and hours for you and you are IC status, it should be reported to IRS and DOL IC misclassification. As an IC, there is itemization on Schedule C of the 1040 for business expenses, how much of your home is used for your business, health insurance that you pay for (even if it is on a spouse's employer sponsored premium -- you still get to itemize the portion that is paid for your health/dental/vision/prescription insurance), utilities - phone, internet, gas, electric (a percentage based on the square footage of your office), a percentage of the homeowner's insurance and property taxes, any office supplies for work - computer, printer, chair, paper, pens, computer software -- purchased in that tax year. I have always used an accountant, but I know there are a lot of MTs that use programs like Turbo Tax and do it themselves. HTH

Social Security and 401K considerations - sm

[ In Reply To ..]
For a few years I had my own business and was able to take many tax deductions; however, I did not pay into social security as much as perhaps I should have, and did not have much extra money for an IRA then. I can now see the gap between my future Social Security benefits and IRA benefits and what my husband has in his accounts. Do not fall into the trap of underfunding your retirement years.

benefits to IC - betrayed

[ In Reply To ..]
Flexibility is the key. If you need to be able to pick up kids, do doctor appointments etc being an IC is great. Look at the ads out there right now, as an employee most jobs are 2nd and 3rd shift (which is what I did while raising my kids), they all want a weekend day that you MUST work and holidays. If that suites your schedule you are good to go and don't have to worry about doing quarterly taxes, which is a benefit in itself! More will go to employee status, and is what I am finding on the job boards, but they have control over you.

If IC is mandated to work weekends and holidays - anon

[ In Reply To ..]
Then that would probably be a misclassification of an employee as an IC. An IC sets their own hours, most of the MTs on this board know this. If in doubt, see the IRS website regarding IC versus employee, which is very clear. There are a few advantages to being IC, such as a solo or one person 401K which can be set up with profit sharing and allows for quite large tax deferred contributions. However, at the current line rates that most of the MTSOs are paying even the ICs, unless you are living with someone who makes a good income and yours is extra, it is doubtful that one would have enough to make it worthwhile. I worked IC for more than 20 years and see it as something more for those who will be depending on a significant other's retirement and pension when it is time to retire. The tax burden on the IC makes it impossible for me to recommend it. You have to make quarterly tax contributions, and if you're barely squeaking by, it's very easy to get yourself into tax trouble.

Also...... - Rusty

[ In Reply To ..]
I also have worked as an IC. My tax lady told me I could take my house also, but when we sold the house, we would have to pay all that money back, so never did it. Just sayin

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