Offered a job: Should I go as consultant / independent contractor, or employee?
"Your comment to James is telling and can help us lead you in the right direction: My work and lifestyle will be the same either way, as I said.   This is all about how it goes ""on the books.""    [emphasis mine] As an independent consultant myself, when I hear something like ""the work will be the same either way"", I think: ""Here thar be dragons!"".  Let me explain: If you go the independent contractor route, then you better act like one.  The IRS (and the CRA, for Canadians) doesn't take lightly to people claiming to be independent contractors when they operate in fact like employees. Since you're not going to be behaving any different whether you are an employee or a contractor, (and assuming you'll be acting more like an employee, i.e. exclusive, etc.), then the IRS may later make a determination that you are in fact an employee, even if you choose to go ""on the books"" as an independent contractor. If that happens, then you may find yourself retroactively denied many tax benefits you'd have claimed; and owe penalties and interest too.  Furthermore, your employer may be liable for additional withholding taxes, benefits, etc. after such a finding. So for those reasons, you should consider being an employee.  You will avoid the potential headache I outlined above, as well as the additional paperwork etc. of being a contractor. If on the other hand you had said you wanted to maintain some flexibility to moonlight with other clients, build your own product on the side, choose what projects you work on (or don't), maybe hire subcontractors, etc. then I'd have supported the independent contractor idea.  But, just on the basis of the tax characteristics only I'd say forget about it. On the financial side, I can tell you that I wouldn't have become a consultant if not for the ability to make more money in gross terms (i.e. before tax and expenses.)  That is: your top line revenues ought to be higher in order to be able to offset many of the additional expenses you'd incur as an independent.  IMHO, the tax benefits alone  wouldn't make up for the difference. One final thing to look at is Form SS-8 mentioned at the IRS link below.  If you're not sure what status to choose, the IRS can actually help you.  But be prepared to wait... and wait...  :-/ Additional Resources:" To be honest I don't know how any of this work in the US so my answer will be of very limited value to yourself, I suspect, but when it comes to the UK if you're going to get the same pay gross either way than being independent makes very little sense.  Running your own business is hassle, is generally more risky (although possibly not in your case) and costs money. Some of the most obvious costs are the added NI, probably the need for an accountant, at around £1200 p/a for basic accountancy service, you are obliged by law to have liability insurance and you probably want professional indemnity insurance, this will be around £600 p/a minmum, and so on and so forth.  On top of that, oficially anyway, as a contractor, you really shouldn't be getting any benefits from the client, and so health insurance, company car, even parking are all meant to be arranged by, and paid by, your company, and can't (or rather - shouldn't) be charged to the client. So - I would say - if you're seriously thinking about setting up a consultancy company, and this client is first of many - set up a company, but take into account the sums you need to earn. If you're really thinking about employment - be an employee. "Linkedlinked, You might want to seriously take another look at the links that Chris provided you.  Specifically the ones on the IRS website: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html From the IRS website: Businesses must weigh all these   factors when determining whether a   worker is an employee or independent   contractor. Some factors may indicate   that the worker is an employee, while   other factors indicate that the worker   is an independent contractor. There is   no “magic” or set number of factors   that “makes” the worker an employee or   an independent contractor, and no one   factor stands alone in making this   determination. Also, factors which are   relevant in one situation may not be   relevant in another. The keys are to look at the entire   relationship, consider the degree or   extent of the right to direct and   control, and finally, to document each   of the factors used in coming up with   the determination. Perhaps more importantly... pay attention to what happens if you're WRONG: Consequences of Treating an Employee as an Independent Contractor If   you classify an employee as an   independent contractor and you have no   reasonable basis for doing so, you may   be held liable for employment taxes   for that worker (the relief   provisions, discussed below, will not   apply). See Internal Revenue Code   section 3509 for more information. I would STRONGLY recommend that you and your partners give your accountant a call and discuss the matter.  They will be able to help you make the right decision. One of biggest mistakes businesses make in this are is to classify their employees as independent contractors.  The IRS (who happens to be hungry for money right now) comes in and says, ""Nooooooooo... those are employees."" ...and the COMPANY gets to pay the employment taxes.  I actually have person experience with this as I worked for a company this happened to.  Every contractor was re-classified as an employee except for two (myself and one other).  The key reason in that case was that none of the other contractors had any other clients. While I understand that you have other clients, I would still recommend talking to your accountant for an hour or so... just to be 100% sure. Sincerely, Andrew Smith TaxQueries.com" "I think it really depends on what work/lifestyle you are looking for. I'm sure your more than capable of going down either route, but you should weigh up the pros and cons of each A consultant would be great, you'd be your own boss and you have overall say on how your business/career plans out, but be prepared to put in a hell of a lot of work to get it off the ground. Long hours, little time for social/family etc. But in the long run it'll pay off Employee, no worries about running your company, just turn up and perform your duties. You'll get the whole benefit package: healthcare/pension etc. You can probably go on expense paid training courses etc It depends, do you want to just be an employee working ""for the man"" or do you want to be ""the man""? I wish you luck in whatever you do! :D"
Do you have a regular job, where you work for somebody else and they pay you a salary? If so, they should be deducting estimated taxes from your paychecks and sending them in to the government. How much they deduct depends on your salary and what you put down on your W-4. Assuming you filled that out accurately, they will withhold an amount that should closely match the taxes you would owe if you took the standard deduction, have no income besides this job, and no unusual deductions. If that's the case, come next April 15 you will probably get a small refund. If you own a small business or are an independent contractor, then you have to estimate the taxes you will owe and make quarterly payments. If you're worried that the amount they're withholding doesn't sound right, then as GradeEhBacon says, get a copy of last year's tax forms (or this year's if they're out by now) -- paper or electronic -- fill them out by estimating what your total income will be for the year, etc, and see what the tax comes out to be. You are right that even if you do not receive a 1099-MISC, you still need to report all income to the IRS.  Report the $40 on Schedule C or Schedule C-EZ.  Since your net profit was less than $400, you do not need to file Schedule SE.  From the IRS web site: Self-Employment Income It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income. All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040. Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income. Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer. Since your YouTube income is considered self-employment income and because you probably already made more than $400 in net income (after deducting expenses from the $4000 you've received so far), you will have to pay self-employment tax and file a return.  This is according to the IRS's Publication 17 (2016), Your Federal Income Tax, so assumes the same rules for 2016 will remain in effect for 2017: You are self-employed if you: Carry on a trade or business as a sole proprietor, Are an independent contractor, Are a member of a partnership, or Are in business for yourself in any other way. Self-employment can include work in addition to your regular full-time business activities, such as certain part-time work you do at home or in addition to your regular job. You must file a return if your gross income is at least as much as the filing requirement amount for your filing status and age (shown in Table 1-1). Also, you must file Form 1040 and Schedule SE (Form 1040), Self-Employment Tax, if: Your net earnings from self-employment (excluding church employee income) were $400 or more, or You had church employee income of $108.28 or more. (See Table 1-3.) Use Schedule SE (Form 1040) to figure your self-employment tax. Self-employment tax is comparable to the social security and Medicare tax withheld from an employee's wages. For more information about this tax, see Pub. 334, Tax Guide for Small Business. I'd also note that your predicted income is getting close to the level where you would need to pay Estimated Taxes, which for self-employed people work like the withholding taxes employers remove their employees paychecks and pay to the government. If you end up owing more than $1000 when you file your return you could be assessed penalties for not paying the Estimated Taxes. There is a grace period if you had to pay no taxes in the previous year (2016 in this case), that could let you escape those penalties. Do you work with low-skilled employees? Specifically, do you ever have to manage them? I am going to make the assumption that you do not based on the comments you are making. It is impossible to say ALL of anything is a certain way. I'm not suggesting that at all. I'm going to specifically talk about averages. It seems like you've never been around the average.  The average minimum wage employee doesn't have a high school education. It is fairly safe to say that they continuously are not developing skills that provide value both to themselves and others. If a person refuses to provide more for society, should society fill the gap?  You suggest that people who are poor didn't get there because of their own right. Are people who are self-made millionaires (on average) good with finances? Why would that be? If yes, why do you assume those that are successful are so because of their own merit but cannot be blamed for failure?  Seattle is a nice place. My exterior painter is doing a job there right now. It's a 3 month job. He is painting 1,000 apartments. He took 7 guys with him that he pays around $1,750 a week plus room and board. He had to take 7 guys with him because he can't find workers up in Washington. Can you imagine that? People in Seattle have not developed the skill of exterior painting. That's the reality of your job market. Even further, companies do have massive incentives to move to cheaper locations. The starting salary of large corporations varies wildly based on cost of living. Goldman Sachs will offer nearly $100k a year starting to work in the NYC branch compared to $65-70k in Houston. "The ""more money"" aspect is only true if you ignore the lack of symmetry between employment and contracting. Consulting is another story altogether.  Companies are willing to pay consultants for a number of reasons but the most important is deniability.  If a decision is recommended and goes wrong then the consultants can be sued.  Liability cover is expensive. Cynicism aside, it often isn't cost-effective to keep specialists permanently on the payroll for tasks that are performed once a year. Recently I've noticed that the nature of consulting is changing.  Companies are starting to assemble brains-trusts of internal consultants who can create and manage projects while outsourcing only the labour-intensive data-collection roles.   Expect this to have a big impact on the management consulting industry." Thanks for the reply! I am considering all lines of work as the priority is the location, then the job. But if the work I can get is relevant and expands my network, that carries a lot of value.  The plan is to stay where I am for the next 2-3 years to gain the required work experience to become a charterholder and developing my skills/project portfolio to become a better candidate. I would still be young enough to move to Australia/UK on a working vacation/youth mobility and I want to be set up to have a good chance by then. You are both right and wrong.   A few key things   - I'm not charging the government body I work for, it's a free implementation  - I ensured I do all the work on my own time, not company time. I live somewhere where most government employees work multiple jobs, so this isn't uncommon. In fact, my government body actually does often hire contractors who are also employed.   - I don't live in the US, things are somewhat less different where I am.  - It is certainly not illegal, and I would even argue that it is even somewhat ethical. My work saved my employer (the tax payer) a significant amount of money, which is a net positive. The service is of high quality, and I did not break any employment agreements or laws in the process.   - I hired a lawyer to double check everything. Careful.  I would personally need a LOT more than $5 more per hour to go from W-2 employment to 1099 employment.  It boils down to two reasons: (1) employers pay a huge amount of taxes on behalf of their employees, and (2) you would have to pay all of your own withholding up front. Your current proposal from them doesn't account for that. There are also risks that you face as a 1099.  On the first item, your employer currently pays 6.2% of your Social Security tax. You pay the other 6.2%. If you go to 1099 status, you will be self-employed as an independent contractor and have to pay the full 12.4% out of your increased 1099 wages.  On the second item, your employer also does your withholding out of your paychecks based on what you tell them on a form W-4. If you're disciplined enough to pay this out yourself in estimated taxes every time you get a paycheck, great. Many people aren't and just see a much bigger paycheck with no taxes out of it, and end up with a large tax bill at the end of the year.  Overall, there are some other considerations like healthcare and other benefits. These will not be available to you as a 1099 employee. You can also be terminated spontaneously, unless you have a specific contract length with the company.  As I see it, not including any benefits you would receive, you're looking at LESS money in your pocket at $50/hr as a contractor than at your $48/hr. Your pay net social security deductions is: $48 x 40 hrs x 52 weeks = 99,840 * .938 = 93,649.92. As a 1099 @ $50/hr you would net $50 x 40 hrs x 52 weeks = 104,000 * .876 = 91,104.  Then there are the rest of taxes, etc to figure out your real take-home pay.  I'm not a tax advisor, but I would be very careful to get the whole picture figured out before jumping. I would ask for a lot more with the added risk you would take as an independent, too.