For several years before I got married, I worked as a salaried employee for a large agency. “W-2” employment provided me, a young speech-language pathologist, with certain benefits while allowing me to work in a wide range of clinical settings. The agency automatically withheld my Social Security and Medicare taxes, for example.
Once I got married, however, my husband and I started thinking more about what employment situation would work best for our family. We ultimately decided that the best fit for me involved switching to an independent contractor. Here’s why:
Working for a staffing agency as a W-2 employee meant I needed to work at least 30 hours per week to maintain full-time employment status. Becoming an independent contractor allowed me to work as many or as few hours as I wanted. I preferred this flexibility, because we planned to grow our family one day.
I knew for a fact that planning for maternity leave would be much easier if I started working more on my own terms versus the requirements of full-time employment. As an independent contractor, I can set my own hours and work when it makes sense for my life.
Higher hourly wage
Independent contractors usually earn a higher hourly rate. In my case, I make the same monthly net income as I did before, but I work 50 fewer hours per month. This gives me time to take care of myself, go to the gym, and relax occasionally. My husband and I also enjoy taking our daughter to activities together during the traditional workday.
W-2 employees can’t deduct business expenses on their taxes, but a 1099 contractor can deduct eligible expenses. For me, those deductible expenses include session materials, assessments, postage, licensing, professional membership dues, and continuing education. Being able to deduct these expenses reduces my taxable income, so we pay a lower tax bill each year.
Also, the 2017 Tax Cuts & Jobs Act allows owners of eligible sole proprietorships, partnerships, trusts, and S corporations to deduct 20 percent of qualified business income when filing taxes. This benefit lowers our tax bill even further.
Health insurance and group benefits
Although the staffing agency I worked for did offer health insurance and other group benefits, we use the health insurance plan offered through my husband’s business. Plus, I already purchased life and disability insurance policies on my own.
When one spouse provides most health care and insurance benefits, the other spouse can more easily work a flexible schedule.
My employer offered a 401(k) plan, but no employer match, and the plan had high investment fees. Fortunately, becoming a 1099 contractor opened up a world of possibilities in terms of saving for retirement. As an independent contractor, I opened a SEP IRA—a type of retirement plan for self-employed workers—that lets you stash away considerably more than you can with more traditional plans. This option also allows you to make a single lump contribution each year before you pay your taxes. A single annual payment means the money you earn can earn interest throughout the year.
With a SEP IRA, I contribute up to 25% of my compensation with a maximum cap of $56,000 in 2019. I also chose a brokerage firm offering many investment options. I engineered a low-cost portfolio for my retirement account as well—not an option when you work for someone else.
The bottom line
One significant challenge in giving up my salaried employment status involves careful budgeting. With no employer to deduct wages for federal taxes or contribute to your annual FICA tax responsibility, independent contractors pay quarterly sums to the IRS and can get penalized for paying too little or too late. And although I enjoy the ability to contribute higher amounts to my retirement plan, it means having funds available to make the contributions.
The move from employee to independent contractor required evaluating the pros and cons of each employment type. For me, being able to earn more take-home pay, save more for retirement, and live life more on my own terms outweighed any benefits I gave up when I made the switch.
Lauren Goldslager, MS, CCC-SLP, works in the Palm Beach, Florida schools. LGoldslager@gmail.com