Taxes...1099 ....write offs...what am I really making an hour?

Question

I just started a new job and I found out that they will pay me using a 1099 I get $8.50 an hour and drive 200 miles in a week commute. I was told that after I write my gas mileage off I will be making like $10.00 an hour I am married filing single....whats thr real story will I end up owing a bunch of back taxes?

Answer 1

1. It is illegal to deduct commuting expenses, especially a commute to or from home.  However, you may decide to either:

a) Establish a home office that qualifies for the home office deduction (which requires regular and exclusive use of part of the home for work) and deduct the 200 miles per work as being travel between the home office and another job site.

b) Move closer to work, and deduct your moving expenses

2. If you do not qualify for the home office deduction, then, of the $8.50 per hour, approximately $1.20 will go to self-employment taxes.  You will be subject to federal income tax on approximately $7.90 ($8.50 minus the deduction for 1/2 of self-employment taxes), which will be approximately $1.18-$1.19 (assuming you are in the 15% bracket).  This will leave approximately $6.70 per hour, or, assuming you work 40 hours per work, between $265 and $270 per week.  Assuming 20 MPG and $4.50 per gallon, you will have to spend $45 per week on gas, leaving between $220 and $225.

3. If you do qualify for the home office deduction and use the standard mileage rate, then the deduction of your miles will reduce your taxable income by approximately $100 per week.  Using the same assumptions as in 2, the mileage deduction will save you $14.13 per week in self-employment tax and approximately $13.94 in income tax, in addition to whatever you save with the home office deduction.

Answer 2

If you work 40 hours a week, your gross will be $340 a week.  Commuting miles are NOT deductible so that isn't a tax writeoff.  Commuting miles are the miles from your home to your mail workplace and back again.  The only miles that are deductible are actual business miles - miles you drive as part of your job during your workday.

Being on a 1099 will cost you an additional $22 a week, or 55 cents an hour, since you will have to pay both sides of social security and medicare - if you were an employee, getting a W-2, the employer would have to pay matching ss and medicare, and you would only pay about half as much.  Also, you won't be covered for workers comp if you get hurt on the job or for unemployment if you get laid off - the employer pays for those, and if you are working on a 1099 you don't have those.

If your 200 miles per week are actually business miles,  then you could write off $117 a week, which means that much of your pay wouldn't be taxed.  Your tax savings on that writeoff would be less than $18 a week, not enough to even cover the extra ss and medicare you will pay.  And again, if those are commuting miles getting from your home to work and back, that isn't deductible anyway.

So based on the info you have given, they are bs'ing you about that being the equivalent of $10 an hour - it's actually a little LESS than the $8.50 an hour, and under $8 an hour by the time you figure in the extra ss and medicare you'll pay if those miles are really commuting miles and not business miles - and that doesn't even take into account the benefits you lose, like being eligible for unemployment comp and workers comp.

Also, since they are paying you an hourly rate, you are most likely really an employee, and it's illegal for them to pay you as an independent contractor.  If they also set your hours and how and where you work, you are pretty definitely an employee and not a contractor.  They are paying you as a contractor to save THEMSELVES money that they are legally required to pay for employing you.

If you work as a contractor (1099) you have to pay your own taxes, they won't withhold them.  This includes making quarterly payments to the IRS and also to your state if they have an income tax.

Answer 3

In most cases "employers" that pay their "employees" as independent contractors are just ripping off the employees.  They will use every con known to man to tell you what a great deal it is and ride off with you holding the bag.  At the very least they are saving 65 cents an hour in employee taxes.  On top of that they are not paying workers comp or disability insurance if those are required in your state and circumstances.

Now on the other hand your "Married filing Single" filing status may just be one of those two peas in a pod stories.