Hi,
First I'll answer your question and then I'll give you some
unsolicited advice.
It is not technically correct that there is a 1090 tax rate and a
regular tax rate. Here's the difference:
Typically, employees pay a Social Security of 6.2 percent (capping out
at $80,400 in wages) and a Medicare tax of 1.45 percent (those are
called FICA taxes) for a total of 7.65 percent. That amount is also
matched by the employer. During January 2002 employees were supposed
to receive a form that showed how much the employee has had deducted
from his/her pay. When he/she pays taxes, he/she pays the difference
in taxes owed and the amount that had been deducted.
On the other hand, someone who is a contractor is considered
self-employed. He/she pays not only his Social Security and Medicare
taxes, but also what his/her employer would have paid (although the
employer portion in effect counts as a business expense). In other
words, a contractor pays 12.4 percent of his/her income (after
business expenses are deducted) for Social Security and 2.9 percent
for Medicare for a total of 15.3 percent. In January 2002, contractors
were to receive a form indicating how much they had been paid by the
contractee. When he/she pays taxes, he also pays the difference in
taxes owed and the amount that he/she has paid in advance.
So to answer your question, the amount extra you would pay on $15,750
would be $1,204.87 (7.65 percent of $15,750). If you had a been an
employee with the same wages, you would pay $1,204.87 in FICA taxes
(probably through payroll deduction) and your employer would have
"invisibly" paid the same amount. As a contractor, you pay both of
them.
Whatever other taxes you owe depends on your tax bracket, your other
income, your deductions, your tax credits and so on. They aren't
affected by whether you're an employee or a contractor, although as a
contractor you can deduct certain expenses (such as some travel
expenses, some phone bills, and so on.)
Here's a chart that shows the tax rates:
http://www.planningtips.com/QuikGuide/2001ficarates.html
Note that the amounts above could be less if you had more than $80,400
in income during the year.
You should also be aware that if your employer now gives you $1,204.87
for your 2001 taxes, that amount would be taxable as income for the
current year of 2002.
And now for the unsolicited advice:
Either you are working as an employee or you are a contractor (there
are some limited circumstances under which you can be both, but
they're rare). If you are an employee and your employer is treating
you as a contractor, your employer very well could be breaking the
law, and if you go along with this you could be violating the law as
well.
Numerous links on this Google search explain the difference:
://www.google.com/search?hl=es&ie=utf-8&oe=utf-8&q=%22employee+or+contractor%22
If your employer has been treating you like a contractor, it is
possible that your employer hasn't been making proper deductions for
you, and you could be having to make some major tax payments.
If your employer has been treating you like a contractor, it is also
possible that your employer hasn't been paying for worker's
compensation, unemployment insurance, and the like.
It is also possible benefits such as health insurance would be taxable
if you're a contractor.
All in all, if you're an employee but being treated like a contractor,
you could be getting ripped off. There could be long-term
repercussions if you are injured on the job or later need unemployment
benefits.
I would strongly suggest you contact a tax expert and/or attorney
and/or union representative. And if you can handle a fight with your
employer, I would suggest you INSIST that your employer give you a W-2
form, not a 1099, and pay its share of Social Security taxes properly,
if indeed you are an employee. If your employer screwed up, it's
their problem. Don't let it become yours.
End of unsolicited advice.
I hope this all works out for you.
Sincerely,
mvguy |
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