Contract job (hourly rate) as a 1099: How much would I be making after taxes?
"There are way too many details missing to be able to give you an accurate answer, and it would be too localized in terms of time & location anyway -- the rules change every year, and your local taxes make the answer useless to other people. Instead, here's how to figure out the answer for yourself. Use a tax estimate calculator to get a ballpark figure. (And keep in mind that these only provide estimates, because there are still a lot of variables that are only considered when you're actually filling out your real tax return.) There are a number of calculators if you search for something like ""tax estimator calculator"", some are more sophisticated than others. (Fair warning: I used several of these and they told me a range of $2k - $25k worth of taxes owed for a situation like yours.) Here's an estimator from TurboTax -- it's handy because it lets you enter business income. When I plug in $140K ($70 * 40 hours * 50 weeks) for business income in 2010, married filing jointly, no spouse income, and 4 dependents, I get $30K owed in federal taxes. (That doesn't include local taxes, any itemized deductions you might be eligible for, IRA deductions, etc. You may also be able to claim some expenses as business deductions that will reduce your taxable business income.) So you'd net $110K after taxes, or about $55/hour ($110k / 50 / 40). Of course, you could get an answer from the calculator, and Congress could change the rules midway through the year -- you might come out better or worse, depending on the nature of the rule changes... that's why I stress that it's an estimate. If you take the job, don't forget to make estimated tax payments! Edit: (some additional info) If you plan on doing this on an ongoing basis (i.e. you are going into business as a contractor for this line of work), there are some tax shelters that you can take advantage of. Most of these won't be worth doing if you are only going to be doing contract work for a short period of time (1-2 years). These may or may not all be applicable to you. And do your research into these areas before diving in, I'm just scratching the surface in the notes below." In addition to taking into account your deductions, as mentioned by @bstpierre, you also need to account for vacation, and other time off such as sick days. You also need to estimate what percentage of the year you expect to be working and pro-rate your salary accordingly.  For example it is not uncommon to use 40 weeks out of the year which is about 77% of the time.  Also check to see if you would be eligible for unemployment for the times you are not working.  I suspect not.  But in any case, you might want to use worst case scenario figures to see if it is worth it, especially in this economy. "Does your spouse work? That's one factor that can put your income into a higher bracket. The one difference to note is you will pay 2x the social security portion, so even though not ""federal"" tax, its right off the top nearly 13%. I'm not familiar with your states tax. It's really worth dropping the $75 on a copy of the software and running your own exact numbers." If it's just you working, I'd use a ballpark figure of 35% owed - it may be a little high or low, but it's a safe margin to keep set aside for paying your liabilities at the end of the year.
"Here's an alternative. There are hundreds, maybe thousands, of contract engineering firms (""job shops"") in the United States, probably hundreds in California alone.  They are in the business of doing what your ""employer"" wants you to do, they know how to do it, they have been doing it for decades, working with the biggest, most-established companies in the country.  They have forgotten more about providing engineering services to clients, and paying the engineers, than you can learn in a lifetime. Call a few of them.  Set up meetings.  Budget a few hours for it.  You want to talk with the most experienced recruiter in the office, the Old Guy Who Has Been There And Done That.  Explain your situation, and tell them that, rather than go through all of the headaches yourself, you want to investigate the possibility of THEM handling all the headaches, for their usual markup of course.  (You can probably word this better than I can, but you get the idea.) The shop may or may not be willing to talk about their markup.  My personal opinion is that this is perfectly OK.  What they make off of you, after your rate is paid, is THEIR business. Also, talk about what you do, and your recommended rate.  It would not surprise me to learn that you are currently grossly underpaid. AND, mention that, if the client declines, you're going to be available immediately, and you'd certainly be open to working with them.  (You will see this again.)  In fact, if they have any current leads that you fit, you would certainly be interested in hearing about them.  (They may already have a req from another client, for which you fit, for which the client is willing to pay much more than your current ""employer"".) If it were me, personally, I'd start with Yoh, Belcan, and maybe TAD Technical.  These are three of the oldest and best. I'd also hit up CE Weekly, get a subscription, and find some other shops with offices in your area. Once you have a shop lined up, then ask your ""employer"" if, rather than you setting up a personal corporation, they'd be willing to work with an established Contract Engineering firm,  who does this kind of thing for a living, who does this every day, who has been doing this for decades.  Doing this is simpler for everyone, and, by going through an established firm, they avoid having to teach you how to do business with them.  They also avoid the risk of having you reclassified by IRS as an employee, which exposes them to all kinds of legal and financial liability. If they say ""No"", WALK AWAY FROM THEM.  Immediately.  They've just thrown up a HUGE red flag.  This is where the other discussions with the shop come into play." "The different things in each calculator are showing you a bunch of different things. In the ""Roth IRA calculator"", it is comparing what you would have in the end after contributing and withdrawing from a Roth IRA, with what you would have in the end with a taxable account (i.e. an investment outside of any IRAs). In the ""Traditional IRA calculator"", the ""IRA after taxes"" shows you what you would have in the end after contributing and withdrawing from a pre-tax Traditional IRA. The ""IRA before taxes"" simply shows the same amount before you pay the taxes on withdrawal, which is not a useful number. So if you want to compare Roth IRA vs. Traditional IRA, you want to compare the ""Roth IRA"" from the Roth IRA Calculator and the ""IRA after taxes"" from the Traditional IRA calculator, but there are some things you need to be aware of to make a fair comparison, because if you just plug in the same numbers you are going to get a very unfair comparison (it will look like Roth IRA is a lot ""better"" even though it's not). The Roth IRA contribution is after-tax, whereas a (pre-tax) Traditional IRA contribution is pre-tax, and an after-tax dollar is much more than a pre-tax dollar, so if you put in the same nominal contribution amount, you are actually contributing much ""more"" from your wallet in the Roth IRA case. To make a fair comparison, you would need to start with the same pre-tax amount, and put in a Roth IRA contribution amount that corresponds to the equivalent amount after taxes. So for example, a $5000 pre-tax amount with 25% taxes is equivalent to $5000 * 0.75 = $3750, so you would put in $5000 for Traditional IRA contribution vs. $3750 for Roth IRA contribution. Note that if you have the same flat tax rate at contribution and at withdrawal, (pre-tax) Traditional IRA and Roth IRA are exactly the same, and you can see this by putting in 25% for the ""Retirement tax rate"" in the Traditional IRA calculator (we already assumed 25% tax rate for Roth IRA when calculating the contribution). You will see that Traditional IRA would be better in a lower retirement tax rate (e.g. 15%), whereas Roth IRA would be higher in a higher retirement tax rate." There are many different types of 1099 forms. Since you are comparing it to a W-2, I'm assuming you are talking about a 1099-MISC form.  Independent contractor income If you are a worker earning a salary or wage, your employer reports   your annual earnings at year-end on Form W-2. However, if you are an   independent contractor or self-employed you will receive a Form   1099-MISC from each client that pays you at least $600 during the tax   year. For example, if you are a freelance writer, consultant or   artist, you hire yourself out to individuals or companies on a   contract basis. The income you receive from each job you take should   be reported to you on Form 1099-MISC. When you prepare your tax   return, the IRS requires you to report all of this income and pay   income tax on it. So even if you receive a 1099-MISC form, you are required to pay taxes on it. "Employers withhold at rates specified in Circular E issued by the IR. You can request that  additional money be withheld (not an issue here) or you can have  reduced withholding by claiming additional allowances on a W-4 (i.e.,  more than just for you and spouse and dependents) if you believe that  this will result in withholding that will more closely match the tax due.  (Note added in edit):Page 2 of the W-4 form has worksheets that can be used to figure out how many additional allowances to request. Also, I wonder if your withholding will be 37% or final tax bill be  26% of your adjusted gross income.  The tax brackets are the tax  on marginal income. If you are in the 28% tax bracket, you owe 28 cents in tax for each additional dollar of income, not 28 cents in tax for every dollar of income.  Your overall tax might well be less than 20% of your income.  As a specific example, in 2011 a married taxpayer filing jointly would be in the  (highest) 35% tax bracket if the taxable income was $379,150 or more (marginal tax rate of 35% is applicable to every dollar more than $379,150) but the tax on  $379,150 itself works out to be $102,574 or 27.05% of the taxable income. So if you do expect to be earning around $350K or more in salary between now and December 31 to hit that 26% that you expect you will owe, you might want to consider paying a tax accountant for advice on how to fill out your W-4 form for your new employer rather than relying on an Internet forum such as this for free advice. Note added in edit:  Your comment ""... it is a cocktail of ... federal taxes, state taxes, local taxes, health care ..."" on the earlier version of my answer does raise the question of whether you want your employer to withhold 26% instead of 37% and have the money go to meet all these obligations or just 26% towards your Federal income tax liability only. The Federal W-4 form affects only how much money is withheld from your paycheck and sent to the US Treasury.  Some of the money that each of your employers withholds (Social Security and Medicare taxes) is not affected by what you put down on  the W-4 form.  Now, if you hold two jobs and the total income shown on your W-2s is larger than the SS limit, you will  have had too much Social Security taxes withheld, and the excess will be a credit towards your Federal income tax liability.  You have self-employment income too on which you owe Social Security and Medicare taxes and you are making estimated tax payments. The excess Social Security tax payment can count towards this too (as well as income tax on your Schedule C income).  Thus, if your new employer is withholding too much, you might be able to skip making the fourth quarterly payment of estimated tax or make a reduced payment (there is no requirement that the four installments  must be equal).  In short, there are lots of ramifications that you need to take into account before deciding that 26% is the right number. Instead of filling out a W-4  all by yourself right away, I strongly recommend  reading up a lot on income taxes, or play with a tax preparation program (last year's version will do a pretty good job of at least getting you in the right ballpark), or consult with a tax accountant." "Employers withhold at rates specified in Circular E issued by the IR. You can request that  additional money be withheld (not an issue here) or you can have  reduced withholding by claiming additional allowances on a W-4 (i.e.,  more than just for you and spouse and dependents) if you believe that  this will result in withholding that will more closely match the tax due.  (Note added in edit):Page 2 of the W-4 form has worksheets that can be used to figure out how many additional allowances to request. Also, I wonder if your withholding will be 37% or final tax bill be  26% of your adjusted gross income.  The tax brackets are the tax  on marginal income. If you are in the 28% tax bracket, you owe 28 cents in tax for each additional dollar of income, not 28 cents in tax for every dollar of income.  Your overall tax might well be less than 20% of your income.  As a specific example, in 2011 a married taxpayer filing jointly would be in the  (highest) 35% tax bracket if the taxable income was $379,150 or more (marginal tax rate of 35% is applicable to every dollar more than $379,150) but the tax on  $379,150 itself works out to be $102,574 or 27.05% of the taxable income. So if you do expect to be earning around $350K or more in salary between now and December 31 to hit that 26% that you expect you will owe, you might want to consider paying a tax accountant for advice on how to fill out your W-4 form for your new employer rather than relying on an Internet forum such as this for free advice. Note added in edit:  Your comment ""... it is a cocktail of ... federal taxes, state taxes, local taxes, health care ..."" on the earlier version of my answer does raise the question of whether you want your employer to withhold 26% instead of 37% and have the money go to meet all these obligations or just 26% towards your Federal income tax liability only. The Federal W-4 form affects only how much money is withheld from your paycheck and sent to the US Treasury.  Some of the money that each of your employers withholds (Social Security and Medicare taxes) is not affected by what you put down on  the W-4 form.  Now, if you hold two jobs and the total income shown on your W-2s is larger than the SS limit, you will  have had too much Social Security taxes withheld, and the excess will be a credit towards your Federal income tax liability.  You have self-employment income too on which you owe Social Security and Medicare taxes and you are making estimated tax payments. The excess Social Security tax payment can count towards this too (as well as income tax on your Schedule C income).  Thus, if your new employer is withholding too much, you might be able to skip making the fourth quarterly payment of estimated tax or make a reduced payment (there is no requirement that the four installments  must be equal).  In short, there are lots of ramifications that you need to take into account before deciding that 26% is the right number. Instead of filling out a W-4  all by yourself right away, I strongly recommend  reading up a lot on income taxes, or play with a tax preparation program (last year's version will do a pretty good job of at least getting you in the right ballpark), or consult with a tax accountant." "We will bill our clients periodically and will get paid monthly. Who are ""we""? If you're not employed - you're not the one doing the work or billing the client. Would IRS care about this or this should be something written in the   policy of our company. For example: ""Every two months profits get   divided 50/50"" They won't. S-Corp is a pass-through entity. We plan to use Schedule K when filing taxes for 2015. I've never filled a schedule K before, will the profit distributions be reflected on this form? Yes, that is what it is for. We might need extra help in 2015, so we plan to hire an additional   employee (who will not be a shareholder). Will our tax liability go   down by doing this? Down in what sense? Payroll is deductible, if that's what you mean.  Are there certain other things that should be kept in mind to reduce the tax liability? Yes. Getting a proper tax adviser (EA/CPA licensed in your State) to explain to you what S-Corp is, how it works, how payroll works, how owner-shareholder is taxed etc etc." I agree with your strategy of using a conservative estimate to overpay taxes and get a refund next year. As a self-employed individual you are responsible for paying self-employment tax (which means paying Social Security and Medicare tax for yourself as both: employee and an employer.) Current Social Security Rate is 6.2% and Medicare is 1.45%, so your Self-employment tax is 15.3% (7.65%X2) Assuming you are single, your effective tax rate will be over 10% (portion of your income under $ 9,075), but less than 15% ($9,075-$36,900), so to adopt a conservative approach, let's use the 15% number.  Given Self-employment and Federal Income tax rate estimates, very conservative approach, your estimated tax can be 30% (Self-employment tax plus income tax) Should you expect much higher compensation, you might move to the 25% tax bracket and adjust this amount to 40%. "I've been in a similar situation before. While contracting, sometimes the recruiting agency would allow me to choose between being a W2 employee or invoicing them via Corp-2-Corp. I already had a company set up (S-Corp) but the considerations are similar. Typically the C2C rate was higher than the W2 rate, to account for the extra 7.65% FICA taxes and insurance. But there were a few times where the rate offered was identical, and I still choose C2C because it enabled me to deduct many of my business expenses that I wouldn't have otherwise been able to deduct. In my case the deductions turned out to be greater than the FICA savings. Your case is slightly different than mine though in that I already had the company set up so my company related costs were ""sunk"" as far as my decision was concerned. For you though, the yearly costs associated with running the business must be factored in. For example, suppose the following: Due to these expenses you need to make up $3413 in tax deductions due to the LLC. If your effective tax rate on the extra income is 30%, then your break even point is approximately $8K in deductions (.3*(x+3413)=3413 => x = $7963) So with those made up numbers, if you have at least $8K in legitimate additional business expenses then it would make sense to form an LLC. Otherwise you'd be better off as a W2. Other considerations:"