From Simply Hired Blog, Brian DeBelle outlines the benefits and drawbacks of being an independent contractor. Brian writes:
Setbacks of being a 1099 worker:
Many workers are often tempted by the 1099 employment option because they are told that they will get a bigger check. They are enticed by the higher pay without obtaining a full understanding of what their employment status will mean long-term. In the short run that’s absolutely true, however eventually independent contractors will actually owe higher taxes than employees. This is because not only will income tax be taken out, but self-employment tax as well. 1099 workers are also expected to pay twice as much for social security and medicare taxes.
Contractors will never enjoy some of the benefits that employees have the ability to take advantage of. These include sick days, vacation hours, health and dental insurance, worker’s comp, retirement, pension and unemployment benefits – nor are they covered by an employer’s liability insurance. 1099 workers are not eligible for overtime pay.
Advantages of 1099:
The good news for independent contractors is that most of them have the ability to set their own price, and companies tend to pay a higher rate to 1099 workers than they do for W2 employees because there are fewer costs associated with hiring self-employed workers. Also, many independent contractors have the ability to set their own schedules and sometimes even work from home. For some workers it’s all about control, and the lure of not being told by the company what to do or how to do it is enough to make them opt for 1099 status.
While when it comes to taxes, independent contractors have little to look forward to, a few advantages of 1099 tax setup are that they can put more money away in tax deferred accounts like SEP IRA, and have the possibility of deducting certain business-related expenses on taxes.
Read the full story at The Pros and Cons of the Independent Contractor: W2 or 1099?