Suppose a 30-year-old W-2 employee with no dependents is earning $50 per hour in a state with 3% income tax. All else being equal, is there a rule of thumb as to how much this person would need to make per hour as a 1099 employee to be equivalent to the hourly W-2 wage of $50? Thanks.
There's no such thing as a "1099 employee." An employee gets a W-2. If he's getting a 1099-MISC he's a contractor, not an employee.
What do you mean by "all else being equal"? All else would not be equal. It's not just a question of taxes. A contractor does not get paid holidays, vacation, sick leave, health insurance, or other benefits. The billing rate as a contractor has to cover the cost of replacing those benefits, not just the additional tax.
First of all, whether someone is an employee or a contractor is partly a choice, but mostly it is based on the job, exactly what the person does, when he does it, and how much control he has over his own time and performance. So if someone is an employee, switching to being a contractor will entail more than just a change of title.
As an employee the person pays about 7.5% in withholding taxes. As a contractor the person pays double that. A contractor also generally has expenses for a home- or other office. He also has more accounting expenses than as an employee, though most of his expenses can be deducted.
On the other hand the contractor does not qualify for unemployment insurance or for workers' compensation.
Most of the people I've met who work as contractors as for an hourlyl rate 50% higher than what they would receive as an employee. So if the hourly wage as a W2 employee is $50 per hour, the amount they would want as a contractor is $75 per hour.
There's no such thing as a "1099 employee." An employee gets a W-2. If he's getting a 1099-MISC he's a contractor, not an employee.
What do you mean by "all else being equal"? All else would not be equal. It's not just a question of taxes. A contractor does not get paid holidays, vacation, sick leave, health insurance, or other benefits. The billing rate as a contractor has to cover the cost of replacing those benefits, not just the additional tax. =========== Careful: See "statutory employee" in the insurance industry. [Although that may be the converse of what was answered.] There's also the "safe harbored" but misclassified....
As for the original question: $50. Gross income is the same. ;-)
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.