Employee or Independent Contractor — What Are the Costs?

by Ray and Paul

Do you work as an independent contractor?  As an employee?  If you’re paid on an hourly basis at the same rate, you’ll get a bigger weekly paycheck as an independent contractor.   But what are your costs, and what difference does it make to your net income over the course of a year?  We wanted to find out.  Here are examples for 3 individuals: someone who works exclusively as an independent contractor, a full-time employee, and a freelancer who earns some income as an independent contractor and some as a part time employee, perhaps at multiple employers.  Some costs will be the same for all 3 individuals, others will vary by classification.

This chart is organized similarly to a tax return and is based on the new tax law.  Each person earns $50,000 per year.  The independent contractor’s expenses include liability insurance to replace a protection that comes automatically with being an employee, even though some people who work as independent contractors go without it.  The full time employee paid part of the cost of employer-provided group health care.  Other items may apply to both but are deductible on taxes for only one.  Some (groceries, rent) don’t get included on an actual tax return, but we’ve listed them because you do pay them, and they do reduce your available money for the year.
Note that we aren’t considering the question of what your classification should be.  That’s a topic for the previous article.

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