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FAQ

I have two job offers lined up, both are paying the same rate however one is w2 contract other is 1099. In what situation can I make more money?

Unless there are other factors you do not mention, the W2 option will likely yield you more money assuming the same hourly rate.I assume you live in the US. If both options pay the same rate, say $50/hour, then your employer (on the W2 option) will pay taxes, workman’s comp insurance, etc. on your behalf (above and beyond the $50/hour salary). If you choose the 1099 route, you will have to pay those taxes and insurance out of your $50/hr rate. Also, as a W2 employee, you will probably receive full-time employee benefits from your employer - in addition to the $50/hr rate. If you need medical/dental insurance, want your employer to contribute to a retirement plan/401K, and want paid time off (holidays, vacation, sick leave) — then the cost of those benefits can easily add up to 30–40% of your salary. In other words, you would need to increase your 1099 rate by another 35% or so to cover the cost of benefits that you would need to purchase and paid time off that you will not get as a consultant. If the company hires you as a 1099, your holidays are not paid. Your vacation and sick leave time is not paid.My wife formed her own LLC and got advice from several people regarding the consulting rate she should use. The general advice she got from financial advisors was to take your last hourly rate as a W2 employee, and:Increase the starting hourly rate by 28–35% to cover state and federal taxes and workman’s comp insurance, etc. (a range because of different tax rates in different locations).If you have to provide your own benefits, add another 30–40% (which my wife didn’t because she is covered by my insurance).Estimate your business costs and include a percentage to cover your overhead. What’s that? Well, it may be minimal if you just work from home and use your own phone and computer. But if you have to purchase a company car, rent office space, pay for advertising, buy/lease office equipment like a copier, etc. - those costs will add up. Sure, as others have noted, you can write off some costs as business expenses, but that doesn’t mean they are free. If you incur $50K in expenses, Uncle Sam doesn’t give you a $50K break on your taxes. And some expenses are only partially deductible on your taxes, like most business meals at 50%. I’m not a tax expert, so I advise you to consult with a financial advisor or accountant.Finally, add some additional amount for ‘profit’ - say 10% - to cover costs of growing the business, uncertainties/risk, and as a “bonus” (which you will not get typically as a consultant, but which you probably would as a W2 employee).There are definitely some benefits of going the 1099 route. If you are the sole breadwinner of the family, and the consulting gig is not solid or long-term, I would think strongly about staying a W2 employee. If you are more financially free to take risks, and you want to try the entrepreneurial path, give it a shot.Edit: After reading the other answers, I thought I would add one other factor. My wife is a contracts professional. As a 1099 consultant, she helps her clients negotiate multi-million dollar contracts. She does intellectual property training. She spent years as a bookkeeper and has years of experience in recruiting/HR. She is a very smart and capable business-woman. But the administrative side of running her small LLC is too much for her. She paid more than $2,500 in her first year of business for an accountant to set up her books and do her taxes. Now her annual tax prep is a fraction of that, but she has an accountant doing her monthly invoicing and maintaining her Quickbooks accounting records. She still has to file the quarterly IRS 941 forms and payments. She still has to deal with unemployment claims from part-time employees who filed for unemployment after their short-term gig ended. She has to do monthly status reports (essentially a timesheet with supporting data) to submit with her invoices.There is a trade-off between spending money to hire professionals to deal with the accounting, taxes, administrative tasks - versus doing them yourself and taking time away from your paid consulting gig. This is why you will hear stories of small business owners spending 14–16 hour days running their business and then dealing with the administrative / back-office side of the business. If you have never run your own company, I just thought you should be aware of the administrative side of overall operations.

What is the difference between a W2 employee and an independent contractor?

Taxes. As an independent contractor you are responsible to pay your own taxes, your own Unemployment Insurance, Social Security, Medicare and such. Your “employer” give you “jobs” and at the end of the year issue a “1099”. This form itemizes how much they paid you to help accurately file. They file it for their own taxes. Effectively you “work for yourself” and are not subject to overtime or particular work hours and such.As a W2 employee it is your employers responsibility to pay those things. They pay taxes on you as an employee and they deduct from your paycheck what you are supposed to pay. You are also subject to different employment laws.I am not an accountant and this answer isn’t exhaustive, but that is the gist of it.

What taxes should I pay if I am employed by a non-US company?

First I suggest you or your employer contact a US tax professional, because there are a number of tax issues besides just the employment taxes and even the employment taxes could be a complex issue, depending on your employment relationship with your employer.Now to answer the best I can without a lot more information, if you are truly an employee, working and residing in the US, then you will owe US federal income tax, US FICA and Medicare tax plus depending on which state you live in, you will owe state and possibly city level income tax.  Your employer will need to withhold all of these taxes from your pay and remit them to the IRS and appropriate state tax authority.  In addition, your employer will owe employer share of FICA and Medicare tax, plus state unemployment and federal unemployment taxes.  Depending on what state and city you work in, there are other potential employer taxes that may be owed also.Your employer will need to file federal and state employment tax returns quarterly to report those taxes.  They will also be required to make electronic deposits for the federal and possibly the state and city level taxes or will at a minimum need to send a quarterly payment for the state and city taxes if any. Finally your employer will need to file a W2 form for you at year end to report your total earnings and taxes withheld.  Your employer should start by reading Circular E Page on irs.gov from the IRS.

Do you ever feel like it's your job to make sure that everyone else enjoys themself?

Greetings, I feel it’s my job to keep things in order and be mindful of everyone in the ‘room’. When I think about how I should act, I figure I should act in a way that is great For Me, and then I think it’d be great if I can manage to do what was great for me— in a way that’d be better for the people Around Me.Because Each person isn’t just a person, they’re an epicenter of a larger network. Doesn’t the well being? of the people around you affect your well being? I.e, in the instance of family, neighbors, friends, partners. If these people are having a miserable time, what will your enviroment look like? It is These people you’ll know for the rest of your life.Imagine we as mortals? are composed of parts— things like arms, legs, bones, toes and nose. Then imagine, mortals are also parts composed of Larger Wholes. I.e Your friends and your tribe. Here’s an example, what becomes of a body accomodating a liver disease? ? Nothing Good. The entirety is affected; A single wave commands the entire ocean and a single organ bestows an entire body.You as a part, do play a role in the broader community. Mortals are Interlaced by the precursors? to social interactions, we’re touched all the way to our bones. So, you happen to be pretty spectacular if you can manage that Just One person enjoys themselves. And I’m not claiming that trivally, it’s no small thing to be a useful influence.The Author has outlined the following for The contextually-oriented Reader enticed by definitions:? mortal : A human-being subject to a permanant ending of vital processes.? liver disease : Any condition that damages the liver and prevents it from functioning well.? well-being: The wellness of an individual or group, often marked by a feeling of satisfaction or joy.? Precursor: [biochemistry] A substance from which another is formed; ? Something that comes before another of the same kind; a predecessor.

How would USCIS find out if you no longer work for the company that sponsored an H1B visa? How does one accrue and keep track of unlawful stay?

Just to add on a bit to Bruno Guardia’s answer, a company will normally be advised by it’s lawyer to formally withdraw both the petition approval with USCIS and the underlying Labor Condition Application (“LCA”) with the Department of Labor.There’s a specific reason why the company would want to formally tell the government that a particular H-1B is no longer employed - there is case law saying that a company is still responsible for paying the wage stated on the LCA even after termination/separation, up to the expiration date, unless the petition/LCA is withdrawn.So, it’s very likely that the company would take action to withdraw the LCA and petition for a terminated employee, thus informing USCIS that an H-1B is no longer with that company.

What are the disadvantages of being a 1099 employee as opposed to a W2?

The advantages is that the 1099 person can deduct expenses dollar for dollar against 1099 income.  A W-2 person can also deduct  expenses but that is assuming he or she itemizes and the total business deductions are reduced by 2% of gross income.   Additionally,  miscellaneous business deductions are something the IRS likes to audit and its also part of the equation when AMT taxes are calculated    Car expenses is another advantage that  a 1099 person has over a w-2 person.  For a w-2 person, the drive between your house and office is never deductible.   For a 1099 person, if the house is determined to be the official office, then any mileage from home to where you do your thing can be deductible.  That can be tricky however, because if you only have one customer and you are going there every day, the IRS will probably determine that your home isnt your office and conclude where you are driving to is your officeThe disadvantages of a 1099 is that there is no withholding.  You are going to owe income taxes on it  pus self employment taxes.  That means the best you will do is owe 30% of every dollar of net profit you earn from the 1099.  Net profit being the 1099 income minus any business expenses you may have.  I say best because that would be 15% income tax plus 15% self employment tax.  The income tax can be a lot higher depending on your tax rate.  So 1099 are great for disciplined taxpayers who make quarterly estimated payments and have excess cash around.  Its terrible for a 25 year old (or any age)  who makes 20K 1099 income, spends all of it (whats 20K) and owes 5000 in taxes by April 15

What does a "salary or pay rate of $50 an hour on W2" mean?

W2 means you will be an payroll as an employee. That means the employer pays the employer side of payroll taxes (7.65%: FICA, Social Security, Medicare and Workers Comp), and handles income tax withholding (~20%). You may get additional employment benefits like healthcare coverage. If you get laid off, you may be qualify for unemployment.A rate of $50 per hour W2 means that you earn $50 per hour after employer-side payroll taxes, but before employee-side payroll taxes (another 7.65%). The actual amount you get will deduct the employee-side payroll taxes, and income tax withholding (~20%). The latter will be considered “paid” on your end-of-year taxes against which you may claim a refund of any taxes overpaid.1099 means you will be paid as an independent contractor. That means you pay self-employment payroll taxes (15.3% , which is the equivalent to both employe and employee-side payroll taxes). You are responsible for filing and paying estimated taxes quarterly.A rate of $50 per hour 1099 means you will receive the full $50 per hour, but you will need to save a portion of that for estimated and end-of-year taxes. The effective amount is 7.65% less than $50/hr W2 due to the higher self-employment tax rate. You would need to earn $54.14 to compensate for the difference. However, you also do not qualify for unemployment nor healthcare benefits. However, you are able to deduct business-related expenses against your taxable income.

I have cleared my CA IPCC. Can I become a certified income tax practitioner or tax consultant?

Congratulations for getting through IPCC. Now you are a CA Final student. That itself means you have your hands full.There may be two scenarios.First scenario : You may be in a financial crunch.. In that case, approach your Principal and he can definitely help. He can give you assignments .That way your Articleship will not be affected.You can take tutions for CPT IPCC students. Your learning and bank balance will increase.The second scenario is that you want to earn a lot of money soon.Patience !! You are just about there. Start taking initiative. Ask your Principal to give you more work load. The more the experience, the more will be your negotiation power once you graduate. The PR with Tax authorities will be an added advantageThere are Post graduation courses offered by the CA Institute like Tax Management Course and a Certificate course in International Taxation which will definitely help.If for some reason you do not wish to continue with CA, do get the Certification from premier institutes like ISB.

How does a 1099 differ from a W-2 when filing taxes?

Specifically, those are the forms used by employers to report payroll to the the Internal Revenue Service.The difference is that a W2 form is used to report the amount paid to an employee of the company. Employees get numerous benefits, but also the employer is required to withhold estimated income taxes. (These can be adjusted by the employee using a W4 form.) Thus, a W2 employee is likely to get paid less because of the other benefits he receives, and less again because the paycheck he receives will already have estimated taxes taken out.A “1099” worker is not an employee. Rather, they are a contractor. A contractor gets no benefits - no vacation, no sick leave, no holidays, no retirement, no health plan, no saving plan, etc., etc., etc. As a result, a 1099 contractor usually gets much higher pay, since they are typically paid by the hour and only for the hours they actually work. Moreover, the employer does NOT withhold estimated taxes, so the paycheck will appear to be even higher.Another difference is that 1099 workers are required to pay a “self-employment tax”. This corresponds to the amount that the employer would normally pay in taxes towards an employee’s social security account. Since the 1099 worker is “self-employed”, he must pay that tax himself. This tax is 6.2% of the pay up to $128,000. As with other taxes, this will not be withheld by the employer, but must be estimated and paid each quarter by the worker or they will be fined for underpayment of estimated taxes.Finally, only employees get “Unemployment Insurance”. If an employee loses his job, the state will pay him weekly benefit until he finds a new job - up to 26 weeks, but sometimes longer. 1099 workers get no such benefit.As a result, the 1099 worker’s equivalent pay rate should be approximately 33% higher than that of the employee doing the same work. The exact figure depends on the benefits.
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