Deciding between W-2 vs 1099 for upcoming 6-month staffing agency contract

I just got offered a 6-month contract position and the staffing agency is giving me a choice between W-2 employee or 1099 contractor status, both at $60/hr. I'd be submitting my hours to the staffing agency who would pay me, but I'd actually be working at a different company doing standard office work. This should bring in about $62k for the remainder of the year, and it'll likely be my only income source for this tax year. I'm leaning toward W-2 as the obvious choice, but want to make sure my thinking is correct: W-2 Option: $62,000 gross ($25,900) Standard Deduction $36,100 Taxable Income Federal Tax around $4,100 FICA/SS 7.65% of $62k = $4,743 Total take home approximately $53,157 1099 Option: $62,000 gross ($25,900) Standard Deduction ($4,380) Self Employment Deduction ($6,344) QBI (20% of $62,000 minus standard and SE deduction) $25,376 Taxable Income Federal Tax around $2,845 FICA/SS 15.3% = $9,486 Total take home approximately $49,669 Is there anything smart I could do with Schedule C expenses to reduce my SE tax and make the 1099 option more appealing? I'm struggling to think of deductions since this is a regular 9-5 office job at the same location every day, with minimal or no work from home. I don't think I can claim car expenses since it's just commuting to a single workplace, right?

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19 comments

Lauren Johnson

•8M

You're on the right track with your analysis! The W-2 option is generally more favorable in your situation. Here's why: With a W-2, the employer pays half of your FICA taxes (7.65%), which is a significant advantage. With a 1099, you're responsible for the full 15.3% as self-employment tax. Your calculations show this impact clearly. For Schedule C deductions, you're correct that regular commuting expenses aren't deductible. However, if you went the 1099 route, you could potentially deduct: - A home office if you have a dedicated space used regularly and exclusively for business - Any job-specific supplies or equipment you purchase - Professional development courses or subscriptions related to your work - Health insurance premiums (as an adjustment to income) - Retirement plan contributions (SEP IRA, Solo 401k) Even with these potential deductions, the W-2 option still typically comes out ahead for a straightforward contract like yours where you're working at a client's location daily. Plus, W-2 employment provides certain protections and benefits that contractors don't receive.

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Lauren Johnson

•8M

While the QBI (Qualified Business Income) deduction is valuable, it's typically not enough to overcome the additional self-employment tax burden. The OP already factored it into their calculations and still found the W-2 option more favorable. As for negotiating a higher rate as a 1099 contractor, that's absolutely a valid strategy! As a general rule of thumb, contractors should aim for at least 25-30% higher hourly rates compared to equivalent W-2 positions to account for the additional tax burden, lack of benefits, and business expenses. If the OP could negotiate the 1099 rate up to $75-78/hour while keeping the W-2 option at $60/hour, then the 1099 route might become more attractive.

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Caleb Stone

•8M

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Caleb Stone

•8M

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Daniel Price

•8M

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Sophia Bennett

•8M

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Zoey Bianchi

•8M

The penalties depend on how much you owe and how long you're late. The IRS essentially charges interest (current rate is about 7-8%) on what you should have paid each quarter. If you owe more than $1,000 at tax time, you'll likely face an underpayment penalty. For example, if you should have paid $2,500 per quarter and didn't pay anything, you could be looking at several hundred dollars in penalties by tax time. The good news is that if this is your first year being self-employed, you may qualify for a waiver of the penalty. Also, if your previous year's tax situation meets certain requirements, you might be protected by "safe harbor" rules.

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Gabrielle Dubois

•5M

You're absolutely right to question that! Most staffing agencies don't offer 401k matching for contract W-2 employees, or if they do, it's usually much less generous than what you'd get as a direct employee. In my experience with staffing agencies, they typically offer basic benefits like health insurance (often at higher employee contribution rates) but rarely meaningful retirement benefits. The main advantages of W-2 through a staffing agency are really the tax savings (employer paying half of FICA) and unemployment protection, not the retirement perks you'd get with a permanent position.

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