Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 12-08-2016, 11:20 AM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 12,099
OP - since your wife will be self employed , consider she can open a self-401K both IRA and ROTH types. The max contribution limit is $60K/yr if over the 50 age limit (or is it 55?).

Since a person is self employed, consider the hourly rate should go up to compensate for unpaid vacation/holiday time.

I'm surprised the IRS will allow a company to just declare employees as self employed, it didn't work for Microsoft decades ago. Which is why high-tech contractors often run into the 1.5 yr limit/rule.
Sunset is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-08-2016, 11:59 AM   #22
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,448
Yes, this is legal, there's lawyers and accountants involved.


No, she won't be a 1099 contractor, its more complicated than that, but still considered self-employed for tax purposes.


No, DW doesn't have any business expenses she can deduct.


No, her pay is not being adjusted up to compensate for this.


No, she can't opt out of the firm's 401k and use a Solo 401k with it's higher limits and cheaper fund options.


Yes, I think $15k is roughly the tax impact of the change based on this calculator. Run it through with $200k for example and look at the total tax bill when you change the income from employment to self-employed.


https://www.taxact.com/tools/tax-calculator.asp
soupcxan is offline   Reply With Quote
Old 12-08-2016, 12:02 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: Les Bois
Posts: 5,687
how can she be covered by the 401k plan if she isn't an "employee"?
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
Big_Hitter is offline   Reply With Quote
Old 12-08-2016, 12:05 PM   #24
Full time employment: Posting here.
Al in Ohio's Avatar
 
Join Date: Jun 2013
Location: Columbus
Posts: 983
Quote:
Originally Posted by braumeister View Post
This is the part I don't understand. How can they not provide a 1099?

That definitely doesn't sound about right. Any company that hires a consultant who is an LLC has to legally provide them a 1099 at end of year.
__________________
Ohio INTJ ENG ER as of 2016
Al in Ohio is offline   Reply With Quote
Old 12-08-2016, 12:10 PM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 30,521
Quote:
Originally Posted by Big_Hitter View Post
how can she be covered by the 401k plan if she isn't an "employee"?
Exactly!
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 12-08-2016, 12:26 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 15,697
Soup....


Starting to sound a bit 'off'....

Still being in a 401(k), not getting a 1099... neither of these apply to a contractor....

Only employees can be included in a 401(k)... we are talking about new contributions, not old balances left there.... that would indicate employee...

If you hire anybody who is not an employee and pay over $600, you have to send them a 1099.... that would indicate employee....




BUT, maybe they are making all employees 'owners' and it is becoming a partnership or some other kind of legal entity.... but that requires a partnership agreement.... nobody can force you into a partnership....
Texas Proud is offline   Reply With Quote
Old 12-08-2016, 12:31 PM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: Les Bois
Posts: 5,687
I'd like to know what law firm is involved

There are big class action lawsuits against employers treating workers as independent contractors, who the Dept of Labor considered employees, js

reminds me of an Arnold movie - Raw Deal

https://www.dol.gov/whd/workers/misclassification/
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
Big_Hitter is offline   Reply With Quote
Old 12-08-2016, 02:33 PM   #28
Moderator
braumeister's Avatar
 
Join Date: Feb 2010
Location: Flyover country
Posts: 19,247
Quote:
Originally Posted by soupcxan View Post
No, she won't be a 1099 contractor, its more complicated than that, but still considered self-employed for tax purposes.
...
No, she can't opt out of the firm's 401k and use a Solo 401k with it's higher limits and cheaper fund options.
Soup, I really think that if you want serious advice, you'll have to explain at least these two points. "It's more complicated than that" just doesn't cut it.
braumeister is online now   Reply With Quote
Old 12-08-2016, 03:11 PM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 30,147
+1 Sounds off.

While it might be that the employer has decided to take the risk of converting employees to independent contractors, as some have said, it is suspicious to begin with and an area that is being scrutinized... but there is not much an employee can do other than file a Form SS8 - Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding but they will likely end up having to look for a new job and risk being black-balled in their industry.

At the end of the day, the employer is taking the risk by classifying her as an independent contractor rather than as an employee.

Her incremental cost should only be 6.2% of the first $118,500 and 1.45% of her total income. If she is an employee with $200,000 ofearnings, her SS and Medicare taxes would be $10,247. If she is self employed, according to this website it would be $20,050, and $10,025 would be deductible on her tax return. So the impact should be less than $10k after factoring in the tax benefit of deducting the employer portion of self employment tax.

Finally, she can't participate in the employer's 401k if she is an independent contractor. Also, since she is an individual and is paid more than $600 a year then a 1099 would be required. Since you seem sure she would not get a 1099, how would the current employer report to the IRS what she earned?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 12-08-2016, 04:42 PM   #30
Thinks s/he gets paid by the post
MooreBonds's Avatar
 
Join Date: Aug 2004
Location: St. Louis
Posts: 2,179
Quote:
Originally Posted by soupcxan View Post
No, she won't be a 1099 contractor, its more complicated than that, but still considered self-employed for tax purposes.
...
No, DW doesn't have any business expenses she can deduct.
If she is self-employed, then there are several expenses she can legally deduct. For instance, driving to the work location and back to her home office is mileage she can deduct. Speaking of home office, time to assign a bedroom or basement room to be her home office.

Quote:
Originally Posted by soupcxan View Post
No, her pay is not being adjusted up to compensate for this.
Are her benefits being changed? Does she get vacation still, or is that being taken away? There are a whole host of reasons to be paid more as a self-employed person, including taxes, vacation time, health insurance, etc.


Quote:
Originally Posted by soupcxan View Post
No, she can't opt out of the firm's 401k and use a Solo 401k with it's higher limits and cheaper fund options.
As a SELF-EMPLOYED person, she is her own company. The parent company can't tell her what she can and can't do with her own company's 401k. And I don't see how the "parent company' could ever tell her that she 'cant' opt out of the firm's 401k'.
__________________
Dryer sheets Schmyer sheets
MooreBonds is offline   Reply With Quote
Old 12-08-2016, 04:54 PM   #31
Thinks s/he gets paid by the post
Philliefan33's Avatar
 
Join Date: Oct 2014
Posts: 1,347
One of my groups at Megacorp hired independent contractors for specific tasks that were outside of the normal activities of the employees. (In fact, DH filled one of those contractor positions after I left the group, but that's a story for another day).

We had to be very careful that we didn't do things that would classify them as employees in the eyes if the IRS. We could limit the window of working hours because the site was only open to "outsiders" during the core working hours. But we couldn't assign them a company phone, they were not listed in the site phone book, and while they sat at a desk they didn't have keys to lock the drawers.

I think it would be very hard to suddenly characterize employees as independent contractors without radically changing the work environment (or running afoul of IRS rules)
Philliefan33 is online now   Reply With Quote
Old 12-08-2016, 05:24 PM   #32
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,448
Quote:
Originally Posted by Texas Proud View Post
BUT, maybe they are making all employees 'owners' and it is becoming a partnership or some other kind of legal entity.... but that requires a partnership agreement.... nobody can force you into a partnership....
Yes - this is it.
soupcxan is offline   Reply With Quote
Old 12-08-2016, 05:31 PM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 23,637
Quote:
Originally Posted by soupcxan View Post
...

What would you do? ... Look for a job elsewhere (probably at lower pay, even after the tax consideration)? ...
Yes, take another job at lower total compensation. That'll show 'em!

Not sure how anyone can help you with information that conflicts with what they know, and an 'it's complicated' explanation. Sounds like you need professional help that you can sit down with and provide all the complicated details. Or just suck it up.

-ERD50
ERD50 is offline   Reply With Quote
Old 12-08-2016, 05:37 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
target2019's Avatar
 
Join Date: Dec 2008
Location: Stuck in the mud somewhere in the NJ swamp
Posts: 7,389
They pay her money, but there is no 1099? I am racking my brain and the internet to decipher how it is possible in the U.S.
target2019 is offline   Reply With Quote
Old 12-08-2016, 05:41 PM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
target2019's Avatar
 
Join Date: Dec 2008
Location: Stuck in the mud somewhere in the NJ swamp
Posts: 7,389
Quote:
Originally Posted by soupcxan View Post
Yes - this is it.
Mystery solved. How many partners?
My first guess is that it is way to pay less to the em-partners, if I can coin a word.
target2019 is offline   Reply With Quote
Old 12-08-2016, 06:00 PM   #36
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,327
Quote:
Originally Posted by target2019 View Post
Mystery solved. How many partners?
My first guess is that it is way to pay less to the em-partners, if I can coin a word.
So they will get K-1s instead and distributions. There is a line on the K-1 for a 1065(partnership return) that states the net self employment income.
meierlde is offline   Reply With Quote
Old 12-08-2016, 06:40 PM   #37
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2014
Posts: 5,110
Quote:
Originally Posted by Sue J View Post
I'm a school crossing guard, working for the local police department. For years, the crossing guards were employees of the police department. They were included in the state pension system with the city paying 14% to the pension, the employee paying 10% and not paying into Social Security. Right before I was hired in 2006 they started hiring certain city employees through a temporary employment agency.
<snip>
While this is not a W2 vs 1099 situation it does point out how employers look for ways to get out of having direct employees.
This is called a PEO, or Professional Employer Organization. I had a few as clients when I was a consulting actuary. You're still an employee, but not of the company where you go to work every day.

Interesting that the OP's wife is going to be a "partner". I wonder how well that will work and if it will become a trend.
athena53 is offline   Reply With Quote
Old 12-08-2016, 06:43 PM   #38
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: Les Bois
Posts: 5,687
Quote:
Originally Posted by athena53 View Post
This is called a PEO, or Professional Employer Organization. I had a few as clients when I was a consulting actuary. You're still an employee, but not of the company where you go to work every day.

Interesting that the OP's wife is going to be a "partner". I wonder how well that will work and if it will become a trend.
yes, administaff, now known as insperity, is a peo
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
Big_Hitter is offline   Reply With Quote
Old 12-08-2016, 07:39 PM   #39
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,448
They're not directly cutting the new "partners" salaries - your gross pay is the same, but you pay a bunch more tax and you have to pay your own health insurance too (no more company contribution). And yet you're still an employee for retirement purposes so you can't get your own Solo 401k. And all work is done at the office so there's not even mileage to deduct.
soupcxan is offline   Reply With Quote
Old 12-08-2016, 09:02 PM   #40
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 15,697
Quote:
Originally Posted by soupcxan View Post
They're not directly cutting the new "partners" salaries - your gross pay is the same, but you pay a bunch more tax and you have to pay your own health insurance too (no more company contribution). And yet you're still an employee for retirement purposes so you can't get your own Solo 401k. And all work is done at the office so there's not even mileage to deduct.

OK... but that means she has an ownership interest in the partnership.... and should get a share of the profits....


What kind of organization is this Attorneys and accountants do this... but the big ones still have employees...

It is USUALLY a good thing for someone to become a partner and one of these places.... I would just want to make sure it is a LLP so your assets cannot be attached if the company loses a lawsuit....
Texas Proud is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
2012 FIRE - Just hit a huge pothole jwkde Life after FIRE 21 02-15-2011 06:03 PM
(FAQ archive) Retirement plans the self employed and those with multiple employers Martha Early Retirement FAQs 0 10-19-2007 02:22 PM
Am I Self-Employed, Un-Employed or Retired? Trek Life after FIRE 16 06-20-2007 08:55 AM
Wharton: "Giving Employees What They Want: The Returns Are Huge " Nords Young Dreamers 8 01-02-2006 04:12 PM
401k ?'s and tax implications for self-employed.... thefed FIRE and Money 6 12-17-2005 09:42 PM

» Quick Links

 
All times are GMT -6. The time now is 04:44 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.