(disclaimer: the following is to be considered rumor and
allegation. you and you alone are responsible for your
tax, retirement, and benefit situations.)
contract work has two flavors,
1) you're an employee of the headhunter firm (w-2)
2) you are your own business (1099)
(the IRS form number is in parens)
the easy route is to be an employee of the headhunter (w-2).
you get paid a rate, and the headhunter withholds taxes,
possibly withholds 401k, and may even offer benefits
such as medical/dental and possibly even vacation.
they handle all the paperwork, etc.
you're like any other employee of any other company.
if you want to be literally you're own boss,
and you're willing to do the paperwork to do so,
then you can file taxes as your own business (1099).
i.e. you're paid an hourly rate, and you get exactly
that hourly rate in your paycheck, no deductions,
no withholding, no retirement. At the end of the year,
the person writing you're checks will give you a 1099
form that tells you how much they paid you last year.
they'll also send a copy to the IRS, so don't think
you'll just take it under the counter.
there was an court ruling a couple years ago that basically
said if the person filing 1099 does not properly file his/her
taxes, then the IRS can go after the company that paid him/her.
so companies have become gun-shy about paying you as a 1099.
I believe that if you incorporate it shields the company
paying you from tax liability. so you may want to look
at incorporating.
which brings us to the first thing you should do if
you're thinking about going 1099.
get a tax accountant that deals with small businesses.
they should be able to help set you up. They can also
confirm/deny anything I've said in this email.
you're situation may vary, and the tax code changes
every year.
they can help you figure out your estimated taxes.
You'll have to pay estimated taxes on a quarterly basis.
based on predicted income, you send X number of dollars
to state/federal every three months.
Retirement will be via a SEP (self employed program??)
(not sure what the acronym stands for anymore).
how much you can contribute, I believe, is a function
of how much you make. SEP is something you can contribute
this year for last years taxes if you contribute before
you file (i.e. before April 15). your accountant can
help you determine how much you can contribute.
you can set up an SEP with American Century or several
other investment firms and select what type of investing
strategy you would like.
You may also be able to use IRA's as a means to help
your retirement. but the rules have changed a lot lately,
and I'm not sure how IRA's work anymore. last I knew they
had an extremely low contribution limit ($2000 ?). And depending
on your income, they were not pre-tax contributions.
There may be new retirement programs that I dont know about.
ask you're accountant. thats what you pay them for.
Benefits I don't know as much about. When I was single,
I would buy short term health insurance. you'd get coverage
for a year. and if you didn't file a claim the first year,
then you could extend it another year. the deductible was
high enough that it was mainly my "6million-dollar-man"
policy. i.e. i didn't bother using it if I got the sniffles,
but I had it just in case I got in an accident and lost both
legs, an arm, and an eye. I don't know if they even have
that kind of insurance anymore.
if you're married, get on your spouses health program.
I know people who have spouses that work at very low
paying jobs just so they can share the medical/dental,
and the other spouse can work at some outrageous hourly
rate but no benefits.
as far as percentage, a conservative rule of thumb is
for every dollar that comes in, put half of it in a savings
account and don't touch it. only use that money for the quarterly
tax pre-payment and retirement fund contribution.
if you have any left over in the savings fund,
consider yourself lucky, and use it to buy yourself a vacation.
Greg
Chris Dugmore wrote:
>
> Greetings - I am seeking advise about contract work. I am not
> looking for hourly rate or project level pricing information. I am looking for
> information about percentage that is paid out in taxes, retirement investing and
> benefits (health and dental). So, what percentage of the hourly rate goes to
> taxes? Do you alloate a percentage to be invested for retirement? Can you make
> pre-tax retirement contributions? Which financial companies work with independent
> contractors/consultants to help establish retirement packages? Does anybody ever
> think about retiring? For health and dental benefits, how much does coverage cost
> annually and which companies provide the best services?
>
> I'd be grateful for any information and will happily summarize the responses for
> any interested individuals.
>
> Thanks in advance - Chris
>
> _________________________________________________________
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--
Greg London
x7541
