I?ve been offered a full-time job and they gave two options in terms
of salary. The first is; I get paid 45K net income and I pay my own
taxes (aka 1099). The second is; I get paid 45K gross income as a W-2
employee. I think I know the answer already but I want to make sure I
have a second opinion. Other facts that may affect the result could be
that I am married but have no children and I live in California.
Please advice.

Hi mrpaycheck,

All other things being equal, you are better off as an employee.

The main reason is Social Security and Medicare taxes.  One way or
another, 15.3% of your pay is going to Social Security and Medicare
taxes.  If you are an employee, you pay half of that in payroll
deductions and your employer pays the other half.  If you are
self-employed, you pay the whole thing yourself as self-employment
tax.  So you get to keep more of your pay if you are an employee, with
the difference amounting to 7.65% of the total.

You would have to pay income taxes on that 7.65%, but that would only
be a fraction of it, so you would still come out ahead.

As an employee, you would also get unemployment insurance, which is
entirely paid for by the employer, and not available to the
self-employed.

Another difference is that as an employee, you would have to pay State
Disability Insurance tax at a rate of 1.18%.  You do get something for
this tax, but whether it's worth it to you or not, it is more than
covered by what you save on the self-employment tax.


Additional Links

United States Internal Revenue Service Publication 533 on self-employment tax
http://www.irs.gov/publications/p533/ar02.html#d0e271

Social Security and Medicate Tax Rates from SocialSecurityOnline
http://www.ssa.gov/OACT/ProgData/taxRates.html

State of California Employment Development Department Unemployment
Insurance Program Fact Sheet
http://www.edd.ca.gov/uirep/de8714b.pdf

State of California Employment Development Department Disability
Insurance Program Fact Sheet
http://www.edd.ca.gov/direp/de8714c.pdf


I hope this answers your question.  If you need any more information,
please ask for a clarification and I will do my best to help.

--efn

I would agree with assessment above.

Additionally, you may also be elegible for other employee benefits,
which may not be available to you as a consultant (non-employee).

Medical insurance, dental insurance, group term life insurance,
vacation pay, sick days, personal days, holidays pay, stock options
may be among them.

There is one major advantage to being self-employed vs an employee
that was not mentioned above. This is the ability to deduct business
expenses that you incur in the process of operating your business.
These expenses may include a car, computer/laptop, office supplies,
even part of your house if used exclusively for the purpose of running
a business. You can deduct business expenses up to the amount of
income earned. Any excess expenses can be carried forward to the next
year.
Again, this should only be a factor if you are planning to make some
major business expenses to deduct against your income.