W2 vs 1099 Billing Rate

Forum|Forum|3 years ago
November 16, 2022
2 replies
42 views

Is there a general formula for determining a 1099 billing rate should I choose to change my employment status from an employee to a contractor?

If I were to be a contractor who is then self-employed, is there a general rule of thumb to determine a billing rate? If I am currently a $50/hour x 40 hours / week, what would then be a typical billing rate to anticipate the additional self-employment related taxes?

Best answer by KochuK

Hi EstebanF, thanks for joining the event, and post questions.

There are many differences between a W-2 employee and a self-employed contractor (Form 099-NEC).

One of them is the how the Social Security and Medicare taxes are handled:

1. Social Security tax total 12.4% for a max wage base of $147,000 for 2022 - for a W-2 employee, employee share 6.2%, employer share 6.2%. Self-employed contractor bears all.

2. Medicare tax total 2.9%, no cap. - employee share 1.45%, employer share 1.45%. Self-employed contractor bears all.

A typical billing rate to anticipate the additional self-employment related taxes, using your example would be $50 x 40 hours x 1.0765 (6.2% + 1.45% the self employed contractor extra portion in lieu of employer.)

Enclosed are articles related to the many other difference between the two classifications of employment.

https://quickbooks.intuit.com/r/payroll/1099-vs-w2/

https://turbotax.intuit.com/tax-tips/irs-tax-forms/the-difference-between-a-1099-and-a-w-2-tax-form/L8drkTeTQ

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/w2-vs-1099-income/00/1771686

https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-1099/employee-independent-contractor/L2nQIgKF5_US_en_US

Hope the above helps. Thank you.

KochuKAnswer

Level 7

Hi EstebanF, thanks for joining the event, and post questions.

There are many differences between a W-2 employee and a self-employed contractor (Form 099-NEC).

One of them is the how the Social Security and Medicare taxes are handled:

1. Social Security tax total 12.4% for a max wage base of $147,000 for 2022 - for a W-2 employee, employee share 6.2%, employer share 6.2%. Self-employed contractor bears all.

2. Medicare tax total 2.9%, no cap. - employee share 1.45%, employer share 1.45%. Self-employed contractor bears all.

Enclosed are articles related to the many other difference between the two classifications of employment.

https://quickbooks.intuit.com/r/payroll/1099-vs-w2/

https://turbotax.intuit.com/tax-tips/irs-tax-forms/the-difference-between-a-1099-and-a-w-2-tax-form/L8drkTeTQ

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/w2-vs-1099-income/00/1771686

https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-1099/employee-independent-contractor/L2nQIgKF5_US_en_US

Hope the above helps. Thank you.

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EstebanFAuthor

Level 2

Thank you very much for this great detailed answer. This is exactly what I was looking for in terms of a rough calculation for a billing rate, should I opt to change my status to a contractor vs an employee.

Much appreciated.