Employee or Independent Contractor 2/2 SM-LLC

[Mr. MedSchool Money]

My wife works at 2 businesses- one as an trad employee, one as her SM-LLC (taxed as disregarded entity/S-corp). She is providing the same service both places and we want her to be 1099 at both locations to negotiate a higher wage and be able to write off the very long commuting mileage. She estimates about >$500 per month in travel mileage write off value. Yearly income for the business, if both are 1099, would be about 50-70K. The workplace where she is an employee supports her decision to switch to 1099, but says that she will have to pay her own social security which will wipe out the benefits of a slightly higher hourly wage and large travel write offs... Looking for some guidance- is that true about having to pay so much of her own SS it will wipe out benefits? I can't say I trust the employer's advice.

We file taxes together. I'm in Yr 4 of med school and make negligible money (for now).

[Zaphod]

Mr. MedSchool Money wrote:

My wife works at 2 businesses- one as an trad employee, one as her SM-LLC (taxed as disregarded entity/S-corp). She is providing the same service both places and we want her to be 1099 at both locations to negotiate a higher wage and be able to write off the very long commuting mileage. She estimates about >$500 per month in travel mileage write off value. Yearly income for the business, if both are 1099, would be about 50-70K. The workplace where she is an employee supports her decision to switch to 1099, but says that she will have to pay her own social security which will wipe out the benefits of a slightly higher hourly wage and large travel write offs… Looking for some guidance- is that true about having to pay so much of her own SS it will wipe out benefits? I can’t say I trust the employer’s advice.

We file taxes together. I’m in Yr 4 of med school and make negligible money (for now).

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You can simply double the taxes up to 127k that she pays and that will indeed wipe out most peoples gains. You also lose workers comp, any healthcare, disability insurance etc....

First things first, with just a single 1099 you can write off almost anything you want with having both being 1099, so dont see the desire at all. Agree you're unlikely to gain much since you dont make enough money for it to be worthwhile at all anyway. Do not discount the benefits above, they are valuable and more costly than the travel costs listed.

[spiritrider]

Mr. MedSchool Money wrote:

one as her SM-LLC (taxed as disregarded entity/S-corp)

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Which is it. She either has a default SM-LLC which is a disregarded entity and taxed as a sole proprietorship, or she elected to be treated as a corporation under sub chapter S. They are mutually exclusive.

[jfoxcpacfp]

Your wife cannot be a 1099 employee of her s-corp. Like @spiritrider points out, an s-corp is not a disregarded entity (on a related note, I don't see any benefit to an s-corp) so she has either one or the other. If the DE, net income will be taxed as an IC.

We talk about the benefits of IC income frequently in this forum, but going IC should not be viewed as a blanket recommendation. As @Zaphod pointed out and as you are beginning to realize, there are many benefits to being an employee, particular when you are not high income and it is your primary work. IC is more beneficial when you have a side gig or when you are a HIP earning up to around $350k. Beyond that, an s-corp receiving a 1099 tends to be preferable.

I am somewhat surprised that the workplace will "support her decision" to be paid as an IC and I'm suspicious that the motivation is finacial on their end. Either she is or she isn't an employee. Their savings (tax and benefits) will come out of your wife's pocket.