Don't forget that if your mom provides childcare in YOUR home rather than hers, the tax situation changes. She might actually be considered a household employee (like a nanny) rather than self-employed. If that's the case, you might need to pay employment taxes (Social Security and Medicare). There's a household employment tax threshold ($2,600 for 2025), and if you paid her more than that in a calendar year, you'd need to look into "nanny taxes" using Schedule H with your tax return. It gets complicated quickly!

Just want to add another consideration that often gets overlooked - make sure to keep detailed records of all payments to your mom throughout the year. The IRS recommends maintaining records like cancelled checks, bank statements, or receipts showing dates and amounts paid. Since you mentioned paying around $5,500, you're well above the household employment threshold that StormChaser mentioned. Even if your mom ends up being classified as self-employed rather than a household employee, having clear documentation will be crucial if you're ever audited. Also, consider having a simple written agreement with your mom outlining the childcare arrangement, even though she's family. This can help establish whether she's truly self-employed (setting her own terms, rates, methods) or if she's more like a household employee (following your schedule and directions). The IRS looks at the degree of control you have over the work when making this determination. One last tip - if your mom does end up owing self-employment taxes on this income, she might want to make quarterly estimated tax payments for next year to avoid penalties, especially if this arrangement continues.

Something important that hasn't been mentioned yet - if you're planning to refinance before a 1031 exchange, be aware that your debt replacement requirements might be affected. When you do a 1031, you generally need to replace the debt on your relinquished property with at least the same amount of debt on your replacement property (or add more cash to balance it out). If you cash-out refi before selling, you're increasing the debt on the relinquished property, which means you'll need more debt on the replacement property to satisfy the exchange requirements.

Has anyone used a DST (Delaware Statutory Trust) as their replacement property after doing a cash-out refinance on their relinquished property? I'm considering this because DSTs typically come with existing financing that might help satisfy the debt replacement requirements mentioned above.

One thing nobody's mentioned yet - if he takes the 1099 job, he should factor in the cost of liability insurance! As a 1099 contractor, especially in anything medical-adjacent, he might need professional liability coverage that the W2 employer would otherwise provide. I learned this the hard way and ended up paying $1,200/year for basic coverage.

Based on all the factors mentioned here, the W2 position at $37/hour is clearly the better financial choice for your husband. Here's why: 1. **Tax burden**: As others noted, 1099 contractors pay both sides of FICA taxes (15.3% self-employment tax), while W2 employees only pay half. 2. **Benefits value**: You mentioned the W2 includes health insurance ($520/month saved = $6,240/year), 5 days PTO (~2% of annual salary), and 2% 401k match. That's easily $8,000+ in additional value annually. 3. **Hidden costs**: 1099 work may require liability insurance, disability coverage, and other protections that W2 employment typically includes. 4. **Administrative simplicity**: W2 means less quarterly tax planning, simpler record-keeping, and reduced audit risk. When you factor in the benefits package alone, you're essentially comparing $41+ effective hourly rate (W2 with benefits) versus $40 (1099 with additional tax burden and no benefits). The math strongly favors the W2 position, especially since he's already maintaining his primary 1099 work for that entrepreneurial flexibility.

I'm using H&R Block instead of FreeTaxUSA and don't see this exact question. Is there something similar I should be looking for? Getting my first 1099-NEC this year and don't want to miss anything important.

As someone who's been doing contract work for a few years, I can confirm what others have said - the answer is "Yes" for your situation. This question trips up so many people because it sounds way more complicated than it actually is for most US-based contractors. The "effectively connected" language comes from international tax law, but tax software has to ask everyone. Since you're physically in the US, working for a US company, and receiving a 1099-NEC, your business activity is definitely effectively connected with US trade or business. I remember being terrified of this same question my first year filing as a contractor. The IRS isn't trying to trick you - they just need to know if your business income should be subject to US taxation, which it absolutely should be in your case. You're not going to trigger an audit by answering "Yes" to this question when you're clearly a domestic contractor.

Your total tax bill seems in line with what I experienced when I was fully self-employed. The breakdown was roughly: - Regular income tax: ~22% effective rate - Self-employment tax: ~15.3% (Social Security + Medicare) That puts you right around 37% total, but deductions usually bring it down to 30-33%. It sucks, but it's the reality of self-employment. One thing that helped me was switching to making monthly tax payments instead of quarterly. Psychologically it felt better to pay $5-6k monthly than to get hit with $16-18k quarterly bills.

I feel your pain! I'm also a self-employed photographer and went through the exact same shock last year. That 30% tax rate is unfortunately very normal for our income level. What helped me was realizing that employees making the same amount effectively pay similar rates - they just don't see it because their employer covers half the Social Security/Medicare taxes and withholds everything from their paychecks. We get hit with the full reality all at once. A few things that made it easier for me: - Opened a separate "tax savings" account and automatically transfer 35% of every payment I receive - Started making estimated payments monthly instead of quarterly (you can send them anytime, not just on the due dates) - Maxed out my SEP-IRA contribution which reduced my taxable income by $69,000 last year The retirement account contributions alone saved me about $20k in taxes. If you haven't set one up yet, you have until your tax filing deadline (including extensions) to contribute for 2024. It's still a lot of money, but at least now I budget for it properly instead of getting blindsided every year.