A couple of questions regarding taxes and earning extra money

[unixfreak]

Hello all,

Basically I am getting 2 years severance pay (with insurance) starting in July as I'm taking a voluntary separation that my employer is offering. I'm already getting offers for employment, which I think I'm thrilled as I'll be able to double dip. An earlier thread that I posted was a bit confusing which is here (http://www.early-retirement.org/forums/f26/do-i-need-to-go-back-to-work-97462.html).
Many thought I could retire and many thought that I shouldn't. So ......

The questions that I have are if I go contract (1099) what should my rate be? I make 60/hour (130k) with benefits as an employee.
Next, what should I do with the money earned? My 401k is a little light at 450k and I'm 59. I'm contributing 15% to it (that continues until I'm 61) and also have an HSA that I'm maxing out at 7k this year.

I want to be smart tax wise and retirement fund growth. I rebalanced the 401k to bemore moderate than aggressive.

Thanks for any responses!

 

[kaneohe]

..............................
The questions that I have are if I go contract (1099) what should my rate be? I make 60/hour (130k) with benefits as an employee.
..............................

if you're looking for equivalency, you need to figure out what your benefits are worth. If you know anyone in HR, perhaps they could give you an idea. Even something rough would help. I used to have some numbers that I learned once but unfortunately forgot......stated in terms of benefits are x% of wages for non-exempts and y% of wages for exempts. The % were quite different for the 2 groups.

 

[pb4uski]

....if I go contract (1099) what should my rate be?

As much as they are willing to pay!

Seriously though, if you earn $60 an hour and want something equivalent to what you have as an employee (FICA and OASDI match, health insurance, 401k match, DC contributions, vision, dental, life insurance, DI, vacation, holiday, training, certification costs, etc.) you'll probably need to charge ~$80/hour or more.

My employer would make available to us the value of all the various benefits that they provided to us... if your employer does some similar document then that might be a place to start.

At a minimum, you would want your $60 plus 15.3% for self-employment tax. +~10.4% for three weeks of vacation a year and 10 paid holidays. Plus more if you have licensing costs, continuing education costs, etc. if you have to provide a computer for the work that you do and a printer, internet connection, etc then add the cost of that in too.

 

[HI Bill]

It depends on how much extra you need to have to cover your benefits. Typically, companies that sell labor have an overhead multiplier, like 1.4. So, if you get paid $60 an hour, they bill you out at $144/hr. Since you'll presumably have lower overhead, you really only need to cover things like health insurance, company match on the 401(k), etc., to stay even. So, I'd add in the cost of your annual benefits and add it to the base salary, at a minimum. You can use that as a starting point to negotiate.

My friend quit a consulting company and went to work directly for the client. He was paid 1.5x his previous salary. Win-win.

 

[N02L84ER]

When I went from employee to consulting, I asked for a 1.43 ratio increase. I got the full increase. For a $60/hr wage, that would be $86/hr. If you do manage to double dip, you may not need to pay the full FICA tax the first two years if the severance withholds FICA.

 

[USGrant1962]

Megacorp fringe rates that I am familiar with are about 40-45%. This covers payroll taxes, insurances, paid time off, holidays, etc. If you had substantial bonus/profit sharing that is a whole 'nother matter. But as a bottom line I suggest 1.5 times your old salary (need something to cover office expenses, etc.), going up to whatever the market will bear. You should try to find out typical consulting rates in your business if you can.