Re: CORRECTIONS RE: QUESTION: W-2 vs. 1099 Hourly Rates

Subject: Re: CORRECTIONS RE: QUESTION: W-2 vs. 1099 Hourly Rates
From: "Ridder, Fred" <F -dot- Ridder -at- DIALOGIC -dot- COM>
Date: Thu, 25 Dec 1997 08:53:55 -0500

Michelle Edson wrote (in part):
>When you are paid on a 1099, you must complete form SE where
you are
>taxed accordingly ... which is approximately double what you
would pay
>as an employee).... on the 1040 you subtract 50% of this amount
on line
>25... so basically this is almost a wash when you compare what
you pay
>as a business (1099) and what is deducted from your paycheck as
an
>employee.
<snip>
>So there is should be no significant difference between W2 and
1099
>hourly rates BASED ON SS/MEDICARE TAXES.

Not quite... Yes, you get to deduct the self-employment tax (what would

normally be the employer's part of the Social Security "contribution"),
but
it is deducted from _taxable income_ so that you aren't paying income
tax on
money you paid out for another tax. The impact on the bottom line (i.e.
your
total tax bill) is equal to the deduction times your incremental tax
rate, which
is most likely 24% or 28%. It is definitely *NOT* "basically a wash"
and
cannot be unless the SE tax were treated as a tax credit (subtracted at
100%
from the tax owed). Approximately 3/4 of the SE tax is a real out of
pocket
expense for self-employment income.

Fred Ridder (mailto:f -dot- ridder -at- dialogic -dot- com)
Senior Technical Writer
Dialogic Corporation, Parsippany, NJ

And to keep our marketing people happy:
Get the Dialogic Edge at: http://www.dialogic.com


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