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When I was a contractor (in NZ), there were substantial tax benefits. Not only was my pay higher (to compensate for no-notice termination), I paid less income

When I was a contractor (in NZ), there were substantial tax benefits. Not only was my pay higher (to compensate for no-notice termination), I paid less income tax because many expenses were deductible (car, power, house, phone, computers, etc). It turned out to be something like double my typical salary, with health insurance taken care of by taxes. Are the tax rules different in the US?

duxup 8y ago
Some states in the US have moved towards doing the same thing, but the impact hasn't always been positive as contractors don't get the same protections / benefits as employees and often this ends up being a net negative for the individual. Google contracts out a lot of already ... not that great jobs, they're not getting paid more for being contractors already....
- ryandrake 8y ago
  I think there was once a time in the US, where as a developer you’d (on average) come out ahead financially as a 1090 rather than W2, but I wouldn’t do it anymore. The cost of health care / insurance for a family pretty much forces me to be W2.
  - duxup 8y ago
    >for a family pretty much forces me to be W2 Yup, someone in the family has to have insurance or you're toast if you've got a family sadly :(
wyldfire 8y ago
> Are the tax rules different in the US? AFAIK contractor-style employment (working for a contracting agency at GOOG) is considered no different from working directly for GOOG individual-tax-wise. It would be more like the situation you describe in NZ if you had your own business for which you did contracting.
- TylerE 8y ago
  Don't contractors have to actually PAY their taxes though? Having to actually cut a check for a several grand every quarter seems like it feels worse than having it taken out of your check.
  - bluGill 8y ago
    Most contractors don't own their own company - they are w2 employees of some contract compant. The contract house takes a cut (generally half again more than you make - but out of that they have to pay a bunch of taxes on your behalf). You are an employee for all legal purposes, just not of google but the third party.
misiti3780 8y ago
it works the same way in the US, and probably (my understanding is depends on what you do exactly) even more so now because contractors can probably the pass-through clause in the trumps tax changes in 2019 (aka contractors will be able to pay lower fed income taxes than full-time engineers)
rhacker 8y ago
Somewhat similar, but there are a lot of downsides. Doing taxes as a contractor is basically like doing taxes as a business. Probably similar in your situation. However the rules for it are much much more convoluted, especially when you have healthcare insurance. In the US, the healthcare insurance easily has a tax break involved as an employee, but as a contractor, it would likely require crazy things like incorporating and setting up a CEO/board, etc... Total nightmare. You might get lucky and cheat by calling it an outside service (and expense), but technically you could get audited and bad things result. Things get even more complicated if you have or want an HSA as a contractor. This USED to be a good option, but now it seems like HSA plans are total shit. HSAs used to be cheaper but now they seem to be the same price as non-HSA plans so there really is no advantage to them. Basically, until that side of the tax code is fixed, contractors are fucked over health insurance wise in the US.
- nodesocket 8y ago
  > In the US, the healthcare insurance easily has a tax break involved as an employee, but as a contractor, it would likely require crazy things like incorporating and setting up a CEO/board, etc... I'm not an accountant or lawyer, so take what I say with a grain of salt. Should be able to setup a LLC in the state you do business in. Be careful in California, the LLC will cost you $800 a year even if you make no profit. Once you have an umbrella company you can write off valid business expenses, including health insurance premiums. Be sure to pay quarterly federal tax payments if you are making profit.
- zaroth 8y ago
  There’s nothing convoluted about deducting health insurance and dental premiums if you are self employed. Money you pay for health and dental insurance is counted as a reduction against your AGI — technically this is even better than a deduction, as long as you don’t qualify for insurance through another employer, and cannot exceed your total employment earnings. So you can’t decline employee sponsored health insurance and also claim the reduction, and you can’t deduct premiums to the point where you have a net loss. Qualified expenses go on Line 29 of Form 1040 where it says “Self-employed health insurance deduction”. You do not have to incorporate or setup an LLC to claim the deduction.
tehlike 8y ago
Contractors in this case are likely w2 employees of another company. Normally, contractors are self employed, and can use expenses as deductions etc. This doesnt apply in this case, is my guess.
aantix 8y ago
Along with the deductions, on the U.S., if you can have your contract as a corp-to-corp, the tax savings can be even greater. Pay yourself a fair salary (usually around 30%) along with FICA, take the other 70% as a company dividend and not have to pay Social Security, etc. Not paying FICA is a big saving. It's a very typical S-Corp payment arrangement. It just usually requires an accountant to manage (make sure you pay tax estimations on time, etc). With the corporate tax cuts last year, there's even further savings. An Uber/Lyft driver could operate as a corp if they wanted to. https://www.ridesharingdriver.com/driving-with-an-llc-or-corp-how-to-send-your-ein-to-uber-or-lyft/ https://www.ridesharingdriver.com/driving-with-an-llc-or-cor...
jonlucc 8y ago
I think this is referring to something different, but I could be reading it incorrectly. I think this is essentially that Google has a contract with the companies named, and then the contractors are full-time, regular employees of the contract company. The workers themselves are not 1099 contractors, I don't think.
- intopieces 8y ago
  Correct. They are W2 contractors, not “independent contractors”.
cronix 8y ago
We have social security tax, which is 14.2% (including medicare). The employer pays 50% and the employee pays 50%. When you're self employed - you're the employer as well as the employee so you pay the full 14.2%. That 6.1% increase is usually a lot and hard to get enough deductions to offset it.
r00fus 8y ago
> It turned out to be something like double my typical salary, with health insurance taken care of by taxes. Yeah, except the part about health insurance. In fact I know a lot of folks who had to do the insurance 2-step (find a job for a month - or whatever period - or longer then get terminated and keep the COBRA benefits so they could pay insurance yourself). Not sure if Obamacare now that it's been around for a bit alleviates the fact that the insurance market for individuals used to really really suck. Another way to resolve the health issue is to have a spouse who works to get health insurance so you can contract.

duxup 8y ago

Some states in the US have moved towards doing the same thing, but the impact hasn't always been positive as contractors don't get the same protections / benefits as employees and often this ends up being a net negative for the individual. Google contracts out a lot of already ... not that great jobs, they're not getting paid more for being contractors already....

ryandrake 8y ago
I think there was once a time in the US, where as a developer you’d (on average) come out ahead financially as a 1090 rather than W2, but I wouldn’t do it anymore. The cost of health care / insurance for a family pretty much forces me to be W2.
- duxup 8y ago
  >for a family pretty much forces me to be W2 Yup, someone in the family has to have insurance or you're toast if you've got a family sadly :(

wyldfire 8y ago

> Are the tax rules different in the US? AFAIK contractor-style employment (working for a contracting agency at GOOG) is considered no different from working directly for GOOG individual-tax-wise. It would be more like the situation you describe in NZ if you had your own business for which you did contracting.

TylerE 8y ago
Don't contractors have to actually PAY their taxes though? Having to actually cut a check for a several grand every quarter seems like it feels worse than having it taken out of your check.
- bluGill 8y ago
  Most contractors don't own their own company - they are w2 employees of some contract compant. The contract house takes a cut (generally half again more than you make - but out of that they have to pay a bunch of taxes on your behalf). You are an employee for all legal purposes, just not of google but the third party.

misiti3780 8y ago

it works the same way in the US, and probably (my understanding is depends on what you do exactly) even more so now because contractors can probably the pass-through clause in the trumps tax changes in 2019 (aka contractors will be able to pay lower fed income taxes than full-time engineers)

rhacker 8y ago

Somewhat similar, but there are a lot of downsides. Doing taxes as a contractor is basically like doing taxes as a business. Probably similar in your situation. However the rules for it are much much more convoluted, especially when you have healthcare insurance. In the US, the healthcare insurance easily has a tax break involved as an employee, but as a contractor, it would likely require crazy things like incorporating and setting up a CEO/board, etc... Total nightmare. You might get lucky and cheat by calling it an outside service (and expense), but technically you could get audited and bad things result. Things get even more complicated if you have or want an HSA as a contractor. This USED to be a good option, but now it seems like HSA plans are total shit. HSAs used to be cheaper but now they seem to be the same price as non-HSA plans so there really is no advantage to them. Basically, until that side of the tax code is fixed, contractors are fucked over health insurance wise in the US.

nodesocket 8y ago
> In the US, the healthcare insurance easily has a tax break involved as an employee, but as a contractor, it would likely require crazy things like incorporating and setting up a CEO/board, etc... I'm not an accountant or lawyer, so take what I say with a grain of salt. Should be able to setup a LLC in the state you do business in. Be careful in California, the LLC will cost you $800 a year even if you make no profit. Once you have an umbrella company you can write off valid business expenses, including health insurance premiums. Be sure to pay quarterly federal tax payments if you are making profit.
zaroth 8y ago
There’s nothing convoluted about deducting health insurance and dental premiums if you are self employed. Money you pay for health and dental insurance is counted as a reduction against your AGI — technically this is even better than a deduction, as long as you don’t qualify for insurance through another employer, and cannot exceed your total employment earnings. So you can’t decline employee sponsored health insurance and also claim the reduction, and you can’t deduct premiums to the point where you have a net loss. Qualified expenses go on Line 29 of Form 1040 where it says “Self-employed health insurance deduction”. You do not have to incorporate or setup an LLC to claim the deduction.

tehlike 8y ago

Contractors in this case are likely w2 employees of another company. Normally, contractors are self employed, and can use expenses as deductions etc. This doesnt apply in this case, is my guess.

aantix 8y ago

Along with the deductions, on the U.S., if you can have your contract as a corp-to-corp, the tax savings can be even greater. Pay yourself a fair salary (usually around 30%) along with FICA, take the other 70% as a company dividend and not have to pay Social Security, etc. Not paying FICA is a big saving. It's a very typical S-Corp payment arrangement. It just usually requires an accountant to manage (make sure you pay tax estimations on time, etc). With the corporate tax cuts last year, there's even further savings. An Uber/Lyft driver could operate as a corp if they wanted to. https://www.ridesharingdriver.com/driving-with-an-llc-or-corp-how-to-send-your-ein-to-uber-or-lyft/ https://www.ridesharingdriver.com/driving-with-an-llc-or-cor...

jonlucc 8y ago

I think this is referring to something different, but I could be reading it incorrectly. I think this is essentially that Google has a contract with the companies named, and then the contractors are full-time, regular employees of the contract company. The workers themselves are not 1099 contractors, I don't think.

intopieces 8y ago
Correct. They are W2 contractors, not “independent contractors”.

cronix 8y ago

We have social security tax, which is 14.2% (including medicare). The employer pays 50% and the employee pays 50%. When you're self employed - you're the employer as well as the employee so you pay the full 14.2%. That 6.1% increase is usually a lot and hard to get enough deductions to offset it.

r00fus 8y ago

> It turned out to be something like double my typical salary, with health insurance taken care of by taxes. Yeah, except the part about health insurance. In fact I know a lot of folks who had to do the insurance 2-step (find a job for a month - or whatever period - or longer then get terminated and keep the COBRA benefits so they could pay insurance yourself). Not sure if Obamacare now that it's been around for a bit alleviates the fact that the insurance market for individuals used to really really suck. Another way to resolve the health issue is to have a spouse who works to get health insurance so you can contract.