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Back to corporate world. W9 them or get W2?

Startup failed.. back to corporate world. Until the next thing comes to me and I build it up on the side. Still have my LLC (single member) which I do some custom digital projects through.

Recruiter said they could get me more money if I billed as my LLC using W9 for full-time work as opposed to becoming a W2 employee. He said they could get me more money as the tax etc doesn’t come out. I guess I’d just need to pay all that myself as part of my LLC tax filings, right?

a) is this true?

b) is this more hastle than its worth? Should I just go as W2 employee?

c) or should I W9 them.. and add the income to other side projects I’m likely to carry out during the year anyway?

 

  • I’m European, so I’m not aware of all details about W2 and W9, but basically, all western countries have tax systems based on the same concepts. So here, I will talk about the concepts, not real figures.

    When you provide your work to a company in exchange of money, you can do it as an employee, or as a consultant/contractor/company. As an employee, you have a salary and you are protected by employment laws which give you some security. As a contractor, you are selling a service (your work) to a company. This is a selling act: good or service in exchange for money. No long term perspective, no perks, no guarantee it will continue. It is much simpler: they pay, you deliver. Once done it’s finished. To gain more, you have to sell your services again.

    If you are an employee, you have much more protection, but also much more obligations. It becomes difficult to have a side project, because you must comply with the contract you signed with your employer. Your employer may claim intellectual property on anything you created during your side activities. If you are a contractor, it becomes impossible: when you buy a product, you don’t buy everything in the company. As an employee, you must be present from 9 to 5. As a contractor, you must deliver to be payed, and you are free about the means you used.

    As a contractor, if your client uses you exactly like an employee, you can sue them and become a real employee, with all the benefits of this status. The opposite is not true.

    There is a money question. I’m not very skilled in US laws. But basically, it is optimization and your choice should not be made only because of money. When you make your choice, then you optimize to pay the less tax possible (without paying tons of money to an attorney in order to save peanuts…). Decide first if you want to be an employee or your own boss. Then optimize taxes.

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  • W9 gets you benefits and healthcare. You have to balance that with the ability to write off expenses using W2.

    Begin rant–

    Personally my biggest gripe is insurance premiums. Being young, I used to be able to get cut rate HSA at $180. Ever since Obamacare kicked in, my premiums shot up to $280 for the same freaking coverage. I’m all for universal healthcare (the idea that someone with preexisting conditions is basically f*cked in the US of A is crazy) but the way healthcare reform was enacted was a kick to the teeth to the middle class.

    End rant —

    Reply

  • I believe the real question is W4 vs. W9

    If you go the W4 route, you get a W2 issued by the employer – and are considered an employee. This means the employer pays half the FICA (Social Security, Medicare, unemployment). W2 does NOT mean you necessarily get benefits – very much depends on the company’s policies (generally hours-related, but not necessarily).

    If you go W9 – you will get a 1099. This means you’re an independent contractor. It means you get to pay the 2nd half of FICA yourself (i.e. double). This generally means 7.5% extra out of pocket cost deducted right from your own pay. Depending on the type of work in question – W9/1099 may not actually be possible.

    Obviously the above is a gross simplification – but the net is that you should get paid more if W9/1099 than W4/W2 in order to net the same income. Some states (and thus employers) will also require W9/1099 folks to incorporate – which in turn increases the costs associated with this income: corporation taxes – for example in CA is a minimum of $800/year, corporation filing fees, etc. For higher 1099 payments, I think you might even have to worry about quarterly estimated tax payments since the employer doesn’t do withholding for you.

    Read the company’s benefit policies and contractor requirements and talk to a professional tax person.

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