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1099 vs W2

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  • 1099 vs W2

    Hello All! Looking for some advice on compensation strategy. I am happily working as a 1099 contractor with my current full time gig, they are offering to transition me to a W2. This is mostly for the mutual commitment that a W2 carries vs.1099 of being "employed." I like the clinic I work for and want to continue, however, want to make the best financial decision that allows me the most post-tax dollars.

    Currently I am paid on a 60/40 split with no benefits and complete freedom of my schedule and vacation days.

    W2 offer - 53% split (as my clinic now has to pay their half of payroll taxes) and much would remain the same - I would still have complete flexibility of time off.
    Other items:
    -3% 401K match
    -malpractice coverage (about 6K value)
    -No health care benefits (I don't need these anyways)

    It seems fair on face value, however, I am concerned that perhaps 1099 is still the way to go considering I could put much more into a solo 401K annually (~20K as W2 vs. 60K as 1099). As well as some tax savings with self employment tax deductions. My business has minimal other expenses that add tax value other than malpractice.

    Appreciate any thoughts!



  • #2
    The actual numbers matter so it's hard to say if the additional 7% as a 1099 is equal to the 3% 401k match, malpractice coverage, additional flexibility for a solo 401k, etc.

    Edit: I will say that on first blush, 7% doesn't seem like it's a big enough gap.

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    • #3
      Given that health insurance doesn’t matter to you, I would heavily lean toward 1099 without knowing a lot of specifics. If you are not in CA or TN, all the better if you are relatively high income ($400k+ or $600k+ in CA, don’t have a calc for TN)
      Last edited by jfoxcpacfp; 03-11-2022, 02:32 AM. Reason: Adjusted last sentence
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        To determine which is better, you have to run the numbers on a spreadsheet. Take the pay and then subtract all the various taxes and expenses under each scenario. Add back the retirement contribution and then correct that amount for your best guess of the taxes that will be owed on that money when withdrawn.

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        • #5
          In a 40+ year career, I always found W-2 "mutual commitment" to be an illusion. With it and so-called loyalty both being one-way streets.

          Three (3) months was the shortest notice I received for non-renewal or early termination of my many independent contracts. On the other hand, layoffs were without any notice (except for rumors) and with just two weeks severance.

          That is why I had non- negotiable eight (8) week and three (3) month severance packages respectively in my last couple of W-2 employments. Both were necessary and used in my mid-late 50s.

          While layoffs may be less common in the healthcare industry, never presume any W-2 employment job security. Healthcare is still a business and you are disposable.

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          • #6
            Originally posted by spiritrider View Post
            In a 40+ year career, I always found W-2 "mutual commitment" to be an illusion. With it and so-called loyalty both being one-way streets.

            Three (3) months was the shortest notice I received for non-renewal or early termination of my many independent contracts. On the other hand, layoffs were without any notice (except for rumors) and with just two weeks severance.

            That is why I had non- negotiable eight (8) week and three (3) month severance packages respectively in my last couple of W-2 employments. Both were necessary and used in my mid-late 50s.

            While layoffs may be less common in the healthcare industry, never presume any W-2 employment job security. Healthcare is still a business and you are disposable.
            I like this perspective - it encouraged me to go back to the OP and read again. That they are “offering” to transition you to a W2 (for what appears to me to be a somewhat inadequate differential) may be a tad ingenuous. Your words, I know (presume), but maybe your perspective is carrying over to the customer (employer for W2), too. Not always a bad deal, but remember each side of a deal is responsible for his/her own best interest.
            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              Thank you, all! I agree that the W2 offer seems a little low. I am going to stay 1099. Thanks for your comments.

              Comment


              • #8
                Originally posted by spiritrider View Post
                In a 40+ year career, I always found W-2 "mutual commitment" to be an illusion. With it and so-called loyalty both being one-way streets.

                Three (3) months was the shortest notice I received for non-renewal or early termination of my many independent contracts. On the other hand, layoffs were without any notice (except for rumors) and with just two weeks severance.

                That is why I had non- negotiable eight (8) week and three (3) month severance packages respectively in my last couple of W-2 employments. Both were necessary and used in my mid-late 50s.

                While layoffs may be less common in the healthcare industry, never presume any W-2 employment job security. Healthcare is still a business and you are disposable.
                These are wise words. Commitment, if applicable perhaps for others reading, from a hospital to an independent hospital based group or even hospitalists, employed group, etc, is marginal at best in this day and age. And commitment from the physician W-2 employer to the physician employee can be variable for a variety of reasons fortunately none of which I've had to deal with too much. That said if given a choice and could go back in time, I would prefer to be 1099 which allows for flexibility in case something does go wrong (and without a noncompete clause) and is what I do now in the latter portion of my career.

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