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I am going to work as consultant. And my employer gave me 2…

Customer Question
Second opinion] Hi Accountant's...

Second opinion] Hi

Accountant's Assistant: Hello. How can I help?

I am going to work as consultant

Accountant's Assistant: Have you talked to a tax professional about this?

And my employer gave me 2 options

Accountant's Assistant: Anything else you want the Accountant to know before I connect you?

75% with pay roll taxes on me or 70% with pay roll taxes on the employer which one should I select

Submitted: 2 months ago.Category: Tax
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Customer reply replied 2 months ago
I am in california
Customer reply replied 2 months ago
is it beneficial to take pay roll taxes on me and have 5% raise in my salary OR / pay roll taxes on employer and 5% decrease in the salary??
Answered in 11 minutes by:
5/25/2018
Tax Professional: Lev, Tax Advisor replied 2 months ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,291
Experience: Taxes, Immigration, Labor Relations
Verified

Payroll taxes are normally 7.65% withheld from employee's wages

PLUS

another 7.65% paid by the employer.

So the "fair game" would be if you have 7.65% increase....
There are other possible benefits to consider if you are en employee - health insurance, vacation and sick pay, unemployment insurance, etc....
It would be hard to transfer these benefits into percentage .... and will mainly depends on their value for your specific situation.
Questions?

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Customer reply replied 2 months ago
I dont have any other benefits. for example if client is paying 100$ ,He told I would be paid 70$ and 30$ goes to my employer
Customer reply replied 2 months ago
or I would be paid 75$ with all pay roll taxes on me....
Tax Professional: James Daloisio, Tax Attorney replied 2 months ago
James Daloisio
James Daloisio, Tax Attorney
Category: Tax
Satisfied Customers: 855
Experience: 24 years of continuing education and experience.
Verified

Hi, my name is ***** ***** welcome to Just Answer.

The previous expert gave you the correct information regarding your withholding. However, you may be asking the wrong question.

You don't get to pick and choose who pays your employment taxes. If you are an employee, your employer pays. If you are an independent contractor, you pay.

The IRS is pretty finicky when it comes to these things. As a self-employed consultant, you keep all the money they pay you but you are responsible for quarterly estimated taxes, and when you file your annual tax return you will pay not only the income tax, but 15.3% self employment tax on top of that. You will get to deduct 1/2 of the self employment tax from your adjusted gross income.

As an independent consultant, you could deduct all of your related business expenses from your income. If you are working out of your home, you would have a home office deduction. With your office in your home, then your residence becomes your "tax home" as well; any trips you make anywhere by auto would be deductible mileage. If you have medical insurance you could deduct it. You could deduct office expenses and supplies. Books and publications. Computer and peripherals and supplies. Cell phone use.

Now, if you are an employee, your employer gets those deductions. You get to deduct employee business expenses on Schedule A, itemized deductions. First, there's a 2% of AGI threshold; second, with the new tax package, if you're married your standard deduction is now $24,000 and you'd have to have more than that in order to use Schedule A at all.

The most important thing is, are you an employee or not? An employee usually has to go to the employer's location to do the job; the employer tells the employee how to do the job, sets the hours and pay rate, and pretty much controls the employee's output.

An independent contractor has their own work location, sets their own hours, charges whatever they can get away with, makes all their own decisions, and gets to deduct all their expenses on top of all that.

So look at what you're doing because that's what the IRS is going to do. If you're a consultant, then most likely you're an independent contractor. You can consult with other entities as well as this one.

You can be a sole proprietorship. No LLC fees, no corporate fees or formalities. Just keep good records.

Hope that helped. Please don't forget to rate this answer. You can always return here with follow up questions on this topic at no additional charge. Thank you for using Just Answer.

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