1099 vs W2: the employee perspective

Many of us get to choose how we want to work, as an employee, a contractor, or freelancer. If you're mulling over leaving the salaried life for a little more independence and flexibility, or are considering giving up some independence and flexibility for a salaried life, here are some factors to consider:

Taxes: The self-employed pay twice as much Social Security and Medicare (FICA) taxes, because employers normally pay half. Self-employed folks will typically pay all 15.3%, a not-insignificant sum. On the other hand, work-related expenses such as postage, travel, Internet access, and home-office maintenance can be deducted on your tax return. Taxes are more complicated for the self-employed, as they often have to make quarterly estimated tax payments throughout the year.

Insurance: Many employees get access to discounted health insurance, often along with life insurance, disability insurance, and other benefits. Self-employed people have to pay for their own -- though health insurance premiums can be deductible.

Work expenses: As an employee, you're provided with your work needs, such as a desk, computer, etc. If you're self-employed, you must provide them yourself.

Retirement: Many employers help their workers save for retirement by providing 401(k) plans or similar plans, often offering matching funds. Freelancers and contractors get none of this and must save on their own. There are several tax-advantaged accounts that can help with that, such as SEP IRAs and SIMPLE IRAs.

If you check in and out of work at certain times, there's a good chance you're an employee. Photo: Alan Cleaver, Flickr.

As a worker, it's worth giving some thought to 1099 vs W2 forms, and the distinction between employees and contractors.

Uncle "D"