Should I Elect to be an Independent Contractor or an Employee?

[J.P. Ventura]

I have the option of being hired as an employee or independent contractor. I am wondering if any local accountants or CPAs in the DC / DMV area have any advice as to which I should choose. I am going to a direct lending originator with the agencies (Fannie Mae, Freddie Mac, & HUD), mortgage broker for financing all other financing options, and an asset manager / developer for a family office so please consider the nature of those businesses (investments in real estate, etc.) as a factor as I would assume that would have an impact on the decision. Also, not sure if there are any tax implications uniquely pertaining to DC or Maryland regarding the occupations and/or investments in Real Estate. Thanks in advance for your help.

[Rick J.]

I hire many w2 contractors, employees and 1099/C2C consultants in my IT business. The industry is different but the underlying tenet of employment should largely be the same.

Big part of your answer depends on what is going to be your 1099 hourly rate vs what will be your w2 hourly cost/salary range?

For example - let's saying your company is paying you $100,000/year in salary, they may offer you $50/hr saying it comes to $100k (50 weeks x 40 hours) but as you can see that's a raw deal because your loaded cost of health, vision, dental benefits are not baked in, neither is your 401k. So typically we take 20% higher on a w2 vs a 1099 ie, if the company pays you $100k salary, you should at minimum ask for $60/hr 1099 or higher.

Next is the liability. On a 1099, a company can refuse to pay you for a job poorly done based on the contract you sign. On a w2, you can do a terrible job and get fired, but you will still get paid for every hour worked because if not that will be a DOL violation.

Lastly the unemployment benefits. Though small, God forbid we face a major recession again your unemp benefits will kick in based on your accrued hours.

Personally I like to be a w2 employee and have my side hustle on a 1099 for my tax write-offs.