Employee or Independent Contractor: Which is Better?

Employee (W2): Turn Key

IC(1099): Moving Parts, More Flexibility

Health Insurance

• Employees are accepted on group plans regardless of pre-existing conditions.
• Employer subsidizes a portion of the employee’s premium.
• Coverage ends when your employment does, unless you take advantage of COBRA provisions as a temporary solution.
• The availability of health savings accounts is up to your employer.

• ACA provides for individualized plans without limitations for pre-existing conditions.
• Your premiums are 100% tax-deductible.
• Your coverage is not dependent on your employment.
• Tax-deductible health savings accounts are available.

Disability & Life Insurance

• Your coverage amount is based on employer discretion.
• Coverage ends when your employment ends.
• Your benefits may be taxable.

• Your coverage amount is based on your individual needs; Financial Designs can provide significant discounts on long term disability premiums.
• Your coverage is portable and benefits are tax-free.

Retirement Savings

• Your options are subject to your employer’s chosen plan provisions, including vesting schedule, eligibility requirements and investment choices.
• In 2021, the maximum contribution is $19,500 ($26,000 for age 50+).

• You choose between a simplified employee pension (SEP IRA), an individual 401(k) plan, a defined benefit plan, or any combination of the three. You can pick where your money is invested.
• In 2021, the maximum contribution is $58,000 ($64,500 for age 50+).

Taxes

• Your payments are withheld and filed by your employer.
• Your employer pays half your FICA taxes.

• You file quarterly estimates based on last year’s tax return or your current year’s estimated income.
• You pay 100% of your FICA taxes.
• Your business expenses are fully tax-deductible.
• You may be eligible for the QBI (20% pass through) deduction; otherwise, you can set-up an entity for further tax reduction opportunities.