We as recruiters have to know what a traveler/contractor expects in their pay package. We need to have a handle on money to determine if our company is a good match in their search for work. It often happens that someone will give me a rate of pay that sounds astronomical and totally out of my range of an offer. My next question would then be, "are you a 1099 contractor?" So many people who contract individually hear an hourly or yearly rate of pay and are dazzled by it, as anyone would be!
I found the article listed below and think it gives a fairly good representation of the differences between a 1099 contractor and a contractor who is actually hired and under the umbrella of a company as an employee:
For a frame of reference, a 1099 contractor making 115k a year, will end up owing roughly 30k in taxes for that year. That is with a home office, mortgage interest, mileage, sales tax, office/computer equipment deductions - pretty much standard fare for a contractor.
Yeah, you can possibly be more aggressive and try to write-off more stuff - but the IRS is cracking down on the self-employed. Even taking a home office deduction is a risk.
You pretty much need to set aside 30% of your earnings and give it to the IRS quarterly.
The best way (that I have found) to compare a given W-2 job with a 1099 gig is to calculate what the yearly take-home NET pay is for each. For contracting, assume that 33% is your tax liability. Then add on health care. For the W-2 job, go to salary.com and use their paycheck calculator to figure out what your bi-monthly paycheck will be - and multiply that by 26 (many people forget that there are 26 bi-monthly paychecks in a given 12 months - usually resulting in an extra paycheck in June and December).
Then you have to take into account stuff like any matching 401(k) the W-2 company has, etc. There are also holidays and vacation to consider. A contractor is NOT paid for holidays and gets no paid vacation.
Also, if you plan on getting a loan for anything (car, house, etc) it is a bitch and a half as a self-employed contractor. Many times you have to get a "stated income" loan, which have higher rates.
NOW, you can avoid some of that if you incorporate. You can pay yourself a small salary, and then issue yourself dividend or bonus checks to make up the difference, and it will reduce your tax liability.
Honestly, if you do decide to take a contracting job, you should see a CPA about how to structure things to be best in your favor
