Becoming a contractor. What do I need to know?

whatsupdoc205 · Joined: 17 Jan 2008 Posts: 9

I have been retired for a couple years. I just got a call from my
former employer about an opportunity to do some "contract" work.

At this point, I do not know whether I will be considered an
employee or not -- what I call a W-2 contractor v. a 1099
contractor.

But either way, I'd appreciate any pointers about things that I
need to consider. "Pointers" can be in the form of guidance
(gawdferbid I should call it "advice" ) or IRS-related
documents (Pubs and Forms) that I need to bone up on.

I know that I can trust my employer to handle the arrangement
properly. I'm usually on top of such things myself. I have been
on the other end of this in the past. But sigh, I let someone
else handle the personnel details. So I feel a little "exposed".

(FYI, I am not yet receiving any SS benefits.)

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Archived from group: misc>taxes>moderated

Benjamin Yazersky CPA · Joined: 02 Jan 2008 Posts: 41

On Feb 19, 9:42 pm, whatsupdoc...@hotmail.com wrote:
> I have been retired for a couple years. I just got a call from my
> former employer about an opportunity to do some "contract" work.
>
> At this point, I do not know whether I will be considered an
> employee or not -- what I call a W-2 contractor v. a 1099
> contractor.
>
> But either way, I'd appreciate any pointers about things that I
> need to consider. "Pointers" can be in the form of guidance
> (gawdferbid I should call it "advice" ) or IRS-related
> documents (Pubs and Forms) that I need to bone up on.
>
> I know that I can trust my employer to handle the arrangement
> properly. I'm usually on top of such things myself. I have been
> on the other end of this in the past. But sigh, I let someone
> else handle the personnel details. So I feel a little "exposed".
>
> (FYI, I am not yet receiving any SS benefits.)
>
> --

Whether you are considered and independent contractor or an employee
depends on your facts and circumstances.
The IRS should have a publication on its website outlining the factors
it considers in making the determination.

___________________________________
>>
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"This written advice was not intended or written to be used, and it
cannot
be used by any taxpayer, for the purpose of avoiding penalties that
may be
imposed on the taxpayer."

(The foregoing legend has been affixed pursuant to U.S. Treasury
Regulations
governing tax practice.)

The information transmitted is intended only for the person or entity
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which it is addressed and may contain confidential and/or privileged
material. Any review, retransmission, dissemination or other use of,
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sharx35 · Joined: 25 Aug 2007 Posts: 9

wrote in message @i7g2000prf.googlegroups.com...
>I have been retired for a couple years. I just got a call from my
> former employer about an opportunity to do some "contract" work.
>
> At this point, I do not know whether I will be considered an
> employee or not -- what I call a W-2 contractor v. a 1099
> contractor.
>
> But either way, I'd appreciate any pointers about things that I
> need to consider. "Pointers" can be in the form of guidance
> (gawdferbid I should call it "advice" ) or IRS-related
> documents (Pubs and Forms) that I need to bone up on.
>
> I know that I can trust my employer to handle the arrangement

Sorry, no, you CANNOT nor should you trust your employer to "do the right
thing". I can almost guarantee that regardless of the circumstances your
employer will try to characterize your work as being that of a contractor.
That way, his bottom line is improved even if it is illegal.

> properly. I'm usually on top of such things myself. I have been
> on the other end of this in the past. But sigh, I let someone
> else handle the personnel details. So I feel a little "exposed".
>
> (FYI, I am not yet receiving any SS benefits.)
>
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Vic Dura · Joined: 25 Aug 2007 Posts: 6

On Tue, 19 Feb 2008 21:42:21 EST, whatsupdoc205@hotmail.com wrote Re
Becoming a contractor. What do I need to know?:

>At this point, I do not know whether I will be considered an
>employee or not -- what I call a W-2 contractor v. a 1099
>contractor.

Keep in mind that if paid via 1099 rather than w-2 that you will have
to pay the employer's share of social security taxes. That's
approximately 7.5%; so for a given hourly rate you net 7.5% less via a
1099. Your particular state may also take a bite.
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At first they laugh at you, then they ignore you, then they fight you, then you win.

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whatsupdoc205 · Joined: 17 Jan 2008 Posts: 9

On Feb 19, 7:51 pm, Benjamin Yazersky CPA wrote:
> On Feb 19, 9:42 pm, whatsupdoc...@hotmail.com wrote:
> > At this point, I do not know whether I will be considered an
> > employee or not -- what I call a W-2 contractor v. a 1099
> > contractor.
> [....]
> Whether you are considered and independent contractor or
> an employee depends on your facts and circumstances.

I understand. The common law definition of employee is in
IRS Pub 15. That's why I said "at this point, I do not know".
I mean: I do not know if the terms of the arrangement will
meet the definition of employee or not.

> The IRS should have a publication on its website outlining
> the factors it considers in making the determination.

Thanks. I'm aware of that, in general. I was hoping for some
specifics (like the pointer to Pub 15), just in case I overlook
something important. I'm not asking anyone to do the legwork
for me. But I'll bet there are knowledgable contractors who
can rattle off some of the issues that they deal with all the time.

For example, the fact that if I'm a "1099 contractor", I need to
cover the employer's part of FICA as well, in effect. Consequently,
I need to be ready with two different wage structures, since my
goal is a certain after-tax income.

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Harlan Lunsford · Joined: 25 Aug 2007 Posts: 790

whatsupdoc205@hotmail.com wrote:
> On Feb 19, 7:51 pm, Benjamin Yazersky CPA wrote:
>> On Feb 19, 9:42 pm, whatsupdoc...@hotmail.com wrote:
>>> At this point, I do not know whether I will be considered an
>>> employee or not -- what I call a W-2 contractor v. a 1099
>>> contractor.
>> [....]
>> Whether you are considered and independent contractor or
>> an employee depends on your facts and circumstances.
>
> I understand. The common law definition of employee is in
> IRS Pub 15. That's why I said "at this point, I do not know".
> I mean: I do not know if the terms of the arrangement will
> meet the definition of employee or not.
>
>
>> The IRS should have a publication on its website outlining
>> the factors it considers in making the determination.
>
> Thanks. I'm aware of that, in general. I was hoping for some
> specifics (like the pointer to Pub 15), just in case I overlook
> something important. I'm not asking anyone to do the legwork
> for me. But I'll bet there are knowledgable contractors who
> can rattle off some of the issues that they deal with all the time.
>
> For example, the fact that if I'm a "1099 contractor", I need to
> cover the employer's part of FICA as well, in effect. Consequently,
> I need to be ready with two different wage structures, since my
> goal is a certain after-tax income.
>
A dollar to a donut says that you will be treated as a contractor.
That's just the "way of the world."

ChEAr$,
Harlan Lunsford, EA n LA

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Harlan Lunsford · Joined: 25 Aug 2007 Posts: 790

sharx35 wrote:
> wrote in message
> @i7g2000prf.googlegroups.com...
>> I have been retired for a couple years. I just got a call from my
>> former employer about an opportunity to do some "contract" work.
>>
>> At this point, I do not know whether I will be considered an
>> employee or not -- what I call a W-2 contractor v. a 1099
>> contractor.
>>
>> But either way, I'd appreciate any pointers about things that I
>> need to consider. "Pointers" can be in the form of guidance
>> (gawdferbid I should call it "advice" ) or IRS-related
>> documents (Pubs and Forms) that I need to bone up on.
>>
>> I know that I can trust my employer to handle the arrangement
>
> Sorry, no, you CANNOT nor should you trust your employer to "do the right
> thing". I can almost guarantee that regardless of the circumstances your
> employer will try to characterize your work as being that of a contractor.
> That way, his bottom line is improved even if it is illegal.

Well now, be careful about that. Many times a former employer needs the
expertise of a former employee and arranges for him to come back on a
pay per day basis, so he can stand around and watch and offer advice on
this or that, or processes, procedures, sort of a combination trainer
and efficiency expert. Nothing wrong with this kind of arrangement.

ChEAr$,
Harlan Lunsford, EA n LA

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sharx35 · Joined: 25 Aug 2007 Posts: 9

"Harlan Lunsford" wrote in message $rc2.42735@bignews1.bellsouth.net...
> whatsupdoc205@hotmail.com wrote:
>> On Feb 19, 7:51 pm, Benjamin Yazersky CPA wrote:
>>> On Feb 19, 9:42 pm, whatsupdoc...@hotmail.com wrote:
>>>> At this point, I do not know whether I will be considered an
>>>> employee or not -- what I call a W-2 contractor v. a 1099
>>>> contractor.
>>> [....]
>>> Whether you are considered and independent contractor or
>>> an employee depends on your facts and circumstances.
>>
>> I understand. The common law definition of employee is in
>> IRS Pub 15. That's why I said "at this point, I do not know".
>> I mean: I do not know if the terms of the arrangement will
>> meet the definition of employee or not.
>>
>>
>>> The IRS should have a publication on its website outlining
>>> the factors it considers in making the determination.
>>
>> Thanks. I'm aware of that, in general. I was hoping for some
>> specifics (like the pointer to Pub 15), just in case I overlook
>> something important. I'm not asking anyone to do the legwork
>> for me. But I'll bet there are knowledgable contractors who
>> can rattle off some of the issues that they deal with all the time.
>>
>> For example, the fact that if I'm a "1099 contractor", I need to
>> cover the employer's part of FICA as well, in effect. Consequently,
>> I need to be ready with two different wage structures, since my
>> goal is a certain after-tax income.
>>
> A dollar to a donut says that you will be treated as a contractor.
> That's just the "way of the world."

Indeed. The ILLEGAL way.

>
> ChEAr$,
> Harlan Lunsford, EA n LA
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whatsupdoc205 · Joined: 17 Jan 2008 Posts: 9

sharx35 wrote:
> > Sorry, no, you CANNOT nor should you trust your employer to
> > "do the right thing".

I feel sorry for people with such jaded opinions of the business
world.

On Feb 20, 2:59 pm, Harlan Lunsford wrote:
> Well now, be careful about that. Many times a former employer
> needs the expertise of a former employee and arranges for him
> to come back on a pay per day basis, so he can stand around
> and watch and offer advice on this or that, or processes,
> procedures, sort of a combination trainer and efficiency expert.
> Nothing wrong with this kind of arrangement.

I want to second that emotion. It is simply wrong to make
sweeping generalizations, as "sharx35" did.

Each case must be assessed in context. While I might be
wary of a company and people that I have never dealt with,
my trusting nature __in_this_case__ is based on the fact that
I had worked for the company for more than 34 years, and I
have known the people who are hiring me for, gee, 20 years.

As a stellar example of their trustworthiness, consider the pay
negotiation. I figured that I needed to gross a certain hourly
rate in order to meet my income goals. They thought it was
too low(!), based on their experience with other contractors.
So they counter-offered with a rate that is 22% higher.

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whatsupdoc205 · Joined: 17 Jan 2008 Posts: 9

On Feb 20, 2:57 pm, Harlan Lunsford wrote:
> A dollar to a donut says that you will be treated as a contractor.
> That's just the "way of the world."

I expected that myself; and in the final analysis, you are correct.

But many years ago, the same company went through a
recharacterization of its relationship with consultants, changing
many to an employer-employee relationship because of the
company's interpretation of the facts that distinguish an
employee from an independent contractor. (See IRS Pub 15-A.)

So my "concern" (more like a question) is not without basis.

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Stuart Bronstein · Joined: 25 Aug 2007 Posts: 561

whatsupdoc205@hotmail.com wrote:
> sharx35 wrote:

>> > Sorry, no, you CANNOT nor should you trust your employer to
>> > "do the right thing".
>
> I feel sorry for people with such jaded opinions of the business
> world.

I'll agree that not everyone is out to cheat you. But I can tell you
that I've seen people get too greedy too often, and very often those
are the people who are closest to you - family and friends.

Not trusting that someone will always do the right thing is not the
same as saying that it is guaranteed he will try to cheat you. But
caution dictates that you should cover yourself when possible, just in
case.

Stu

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Harlan Lunsford · Joined: 25 Aug 2007 Posts: 790

whatsupdoc205@hotmail.com wrote:

middle part snipped for brevity and to mollify the moderator.
>
> Each case must be assessed in context. While I might be
> wary of a company and people that I have never dealt with,
> my trusting nature __in_this_case__ is based on the fact that
> I had worked for the company for more than 34 years, and I
> have known the people who are hiring me for, gee, 20 years.
>
> As a stellar example of their trustworthiness, consider the pay
> negotiation. I figured that I needed to gross a certain hourly
> rate in order to meet my income goals. They thought it was
> too low(!), based on their experience with other contractors.
> So they counter-offered with a rate that is 22% higher.
>
The more you say about your situation, the more you sound like my
client, long time and now retired textile mill supervisor whose
expertise is sought from Columbus, GA up through the Carolinas.

ChEAr$,
Harlan Lunsford, EA n LA

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Harlan Lunsford · Joined: 25 Aug 2007 Posts: 790

whatsupdoc205@hotmail.com wrote:
> On Feb 20, 2:57 pm, Harlan Lunsford wrote:
>> A dollar to a donut says that you will be treated as a contractor.
>> That's just the "way of the world."
>
> I expected that myself; and in the final analysis, you are correct.
>
> But many years ago, the same company went through a
> recharacterization of its relationship with consultants, changing
> many to an employer-employee relationship because of the
> company's interpretation of the facts that distinguish an
> employee from an independent contractor. (See IRS Pub 15-A.)
>
> So my "concern" (more like a question) is not without basis.
>
Further then, with your new information.

Usually once a common law relationship (employer/emloyee) is firmly
established, IRS will expect it to continue and exact draconian
penalties if breached.

However, when you say "the same company", bear in mind that it may
legally be different from way back when, having perhaps assumed an LLC
structure. This change according to IRS would not matter, but to the
powers that now be, that might be their justification for treating
consultants AS contractors.

Life is strange.

ChEAr$,
Harlan Lunsford, EA n LA

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sharx35 · Joined: 25 Aug 2007 Posts: 9

wrote in message @s8g2000prg.googlegroups.com...
> sharx35 wrote:
>> > Sorry, no, you CANNOT nor should you trust your employer to
>> > "do the right thing".
>
> I feel sorry for people with such jaded opinions of the business
> world.

The fact remains that probably 90% of people who call themselves
"consultants" or "contractors" but have only ONE client at a time are really
**employees**, according to tax law. It it WALKS like an employee, TALKS
like an employee and LOOKS like an employee, it probably IS an EMPLOYEE.

>
> On Feb 20, 2:59 pm, Harlan Lunsford wrote:
>> Well now, be careful about that. Many times a former employer
>> needs the expertise of a former employee and arranges for him
>> to come back on a pay per day basis, so he can stand around
>> and watch and offer advice on this or that, or processes,
>> procedures, sort of a combination trainer and efficiency expert.
>> Nothing wrong with this kind of arrangement.
>
> I want to second that emotion. It is simply wrong to make
> sweeping generalizations, as "sharx35" did.
>
> Each case must be assessed in context. While I might be
> wary of a company and people that I have never dealt with,
> my trusting nature __in_this_case__ is based on the fact that
> I had worked for the company for more than 34 years, and I
> have known the people who are hiring me for, gee, 20 years.
>
> As a stellar example of their trustworthiness, consider the pay
> negotiation. I figured that I needed to gross a certain hourly
> rate in order to meet my income goals. They thought it was
> too low(!), based on their experience with other contractors.
> So they counter-offered with a rate that is 22% higher.
>
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========================================= MODERATOR'S COMMENT:
When responding, please include only those portions of the prior post that
are necessary to context or to which you specifically respond, and delete
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rick++ · Joined: 25 Aug 2007 Posts: 328

On Feb 19, 7:42 pm, whatsupdoc...@hotmail.com wrote:

> But either way, I'd appreciate any pointers about things that I
> need to consider. "Pointers" can be in the form of guidance
> (gawdferbid I should call it "advice" ) or IRS-related
> documents (Pubs and Forms) that I need to bone up on.

A contract wage is generally less dollar-for-dollar than an
employee wage. One example is you pay full social security
tax of 15.3% as a contractor and only half of that as employee.
Plus you will probably be paying for all of your benefits and not
receiving them tax free like an employee. So the rulle of thumb
is to ask for about 30% higher wages for equivalent take-home
or to expect your net cut about 25%.

On the flip side you allowed to deduct more expenses. As an employee
you can only deduct required expenses above 2% AGI. But as a
contractor you can start deducting things like computers and trip
costs
right away. Learn how to do this on a 1040-C form.

There are books describing these issues for contractors. Often they
are
written people like computer consultants or real estate agents,
but many of the issues apply to every contractor.

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