turbotax icon
turbotax icon
turbotax icon
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Announcements
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

W2 or 1099 vs solo 401k and QBI

I’m an independent contractor.   I just changed the supplier that I go through, ( I work for a larger corporation but have to go through a supplier) and the supplier has a 401(k), but I don’t want to use it - I want to just do my own solo 401(k). And I want to continue to QBI 20% income reduction.

 

I can go through this supplier either as a 1099 or W-2 Contractor.   Are there tax consequences I need to consider related to solo 401k and QBI decision between the two?

Connect with an expert
x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

3 Replies

W2 or 1099 vs solo 401k and QBI

There is no such thing as "W2 contractor."

W2 = Employee

1099-Misc = Independent Contractor and you are running your own business

 

You can never use another entity's retirement plan if you are not their employee. You seem to be a Subcontractor, contracting through that supplier to the main party having the work done. As their Employee, you would be working for them, and they still are the party contracting to the larger corporation.

 

QBI has to do with specific expense allowance when you are running your own business. This is not applicable to the employee relationship. As an employee, you would not have expenses against the income; you get Payroll Wages as the income.

 

Retirement planning can be post-tax funds or pre-tax funds. There can be your own funds, your employer funds, or your own company acts as your "employer" for purposes of funding retirement.

 

That means there are something like a dozen permutations for what is permitted, and that is something to get personal and direct one-on-one guidance regarding.

 

You don't get to pick if you want to be 1099-Misc contractor or W2 employee to that other entity, the "supplier." They are supposed to do proper Worker Classification and hire you accordingly, as either one or the other, depending on their circumstances.

W2 or 1099 vs solo 401k and QBI

There is no such thing as "W2 contractor."

W2 = Employee

1099-Misc = Independent Contractor and you are running your own business

 

You can never use another entity's retirement plan if you are not their employee. You seem to be a Subcontractor, contracting through that supplier to the main party having the work done. As their Employee, you would be working for them, and they still are the party contracting to the larger corporation.

 

QBI has to do with specific expense allowance when you are running your own business. This is not applicable to the employee relationship. As an employee, you would not have expenses against the income; you get Payroll Wages as the income.

 

Retirement planning can be post-tax funds or pre-tax funds. There can be your own funds, your employer funds, or your own company acts as your "employer" for purposes of funding retirement.

 

That means there are something like a dozen permutations for what is permitted, and that is something to get personal and direct one-on-one guidance regarding.

 

You don't get to pick if you want to be 1099-Misc contractor or W2 employee to that other entity, the "supplier." They are supposed to do proper Worker Classification and hire you accordingly, as either one or the other, depending on their circumstances.

W2 or 1099 vs solo 401k and QBI

There is no such thing as "W2 contractor?"

 

W2 = on payroll as their employee

or;

1099-Misc = your client, the Supplier, hired you as your own company, even if that means you are a subcontractor to the "Supplier" that has the higher level contract to the common end customer

 

When you are an employee of another entity, you are no longer an independent business. That means none of the expenses associated with that job are you business expense and there is no QBI, since there is no Sched C tax return for your "business" operations. At least, not for the job for which you are now hired and paid through payroll as someone else's employee.

 

An independent contractor cannot participate in any retirement plan offered by any other entity. You would have to chose and set up one of the IRS plan types that qualifies for you as your own business.

 

As an Employee, you would be qualified for whatever your Employer offers and on their terms, and no longer qualify for an independent business retirement plan, unless you also have other earnings that are not through an employee relationship but are still operating as your own business. You can have both types of work: an employer might not require you to work only for them, which allows you to work as an independent contractor to other businesses and you realize you have the time and resources to cover both types of work.

 

So, to summarize:

W2 = employee

1099-Misc = running yourself as your own business

Use your Intuit Account to sign in to TurboTax.
By selecting Sign in, you agree to our Terms and acknowledge our Privacy Statement.
message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question
Manage cookies