Changing from W2 employee to contractor

  • This topic has 45 replies, 14 voices, and was last updated 6 years ago by sacpa.
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  • #1692166
    sacpa
    Participant

    Please bear with me, it’s a long post.

    Though my background in not in Accounting, I met the education requirements for the CPA exam & got qualified to take the exam. I have an A in all my Accounting courses. I have not passed any section yet.

    I have worked as seasonal Tax Preparer in CPA firms from 2013 – 2017. As a W2 employee, I started with an hourly pay of $17/hr. Then $20, $25, $29.32 last year. Except for the last job which I got through Accountemps, the rest of them were from Craislist ads to which I directly responded & got selected. In 2013, I also worked for 3 months as an Account Executive while I handled A/R, A/P, bank reconciliations & used QuickBooks.

    Currently, I have been offered a contract position in an Accounting firm for 6 months. One partner is a CPA & the other is not. During the tax season, I will be preparing taxes 15 – 22 hours per week & paid $25/hr. After tax season, it will be Financial Accounting & bookkeeping duties working for 10 – 15 hours per week & pay will be $22/hr. After 6 months, if all goes well & they are impressed, they may offer a job as a W2 employee, which off course is not guaranteed.

    Pros:
    1. The work hours would be ideal since I can balance both work & studying for the CPA exam.
    2. The firm is about 10 minutes away from my home so no long commute. However, when I start the bookkeeping duties, I might need to commute to clients’ firms.
    3. I will learn a lot while preparing taxes & especially bookkeeping which I love to learn & gain more experience.
    4. I can claim expenses as a contractor in my tax return. I am covered by my husband’s health insurance, so that is not an issue.
    5. I may be offered a job as a full time W2 employee, if the employer is impressed with me.

    Cons:
    1. Pay as contract tax preparer is lower than I made as a W2 employee. As a contractor, I need to pay employer’s share of 6.2% social security taxes (in CA), 1.45% of Medicare taxes in addition to the employee’s share.

    Given the above situation, I would love to hear your thoughts & suggestions as to whether taking this contract position is a good idea. Any other valid points that I did not mention are very appreciated. Thanks in advance.

    Winners don't quit. Quitters don't win.

    FAR - < than 75, 10/2013, 2/2015
    BEC - < than 75, 10/2013
    AUD - < than 75, 8/2015, 1/2016

    ~ Winners fail until they succeed. Losers quit when they fail. - Robert Kiyosaki
    ~ I survived because the fire inside burned brighter than the fire around me.
    ~ Something will grow from all you are going through. And it will be YOU.
    ~ Right now you may not be where you intend to be, but it's where you need to be in order to get where you want to go.

Viewing 15 replies - 1 through 15 (of 45 total)
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  • #1692169
    turo9992000
    Participant

    I think you would be an employee. You would be preparing tax returns using their software, and using their procedures. If they want to pay you as a contractor, then they should probably pay you based on the number of tax returns you prepare, and they should probably just be giving you files and you prepare and give them back. They'll review, sign and file them.

    They are saving quite a bit of money by paying you $25 per hour as a contractor, since they are not paying payroll taxes.

    If I was you, I would ask to be an employee or try and find work at a different firm. There's work out there, you have to go out and look.

    AUD - 64, 80 Passed on 10/09/17

    BEC - 75 Passed on 12/09/17

    FAR - 69, 71, 73, 83 Passed on 06/10/18

    REG - 81 Passed on 09/10/17

    #1692176
    sacpa
    Participant

    turo9992000: Thanks for your response. Yes, they are certainly saving lot of money. They said that it is their policy to offer contract position for 6 months & then offer a W2 position. I don't think they will agree to offer a W2 position when I start work with them. I did some research & found out that the contractor's pay should be more than W2 employee pay due to the need of paying employer's share of FICA taxes.

    Yes, there are jobs. But I am preparing for AUD exam & planning to take it next week or so. So I did not do any job search recently. This opening for posted in a local site for neighbors. As you know, doing job search itself is a full time job. If this contract position is not worth it, then I will start looking for a seasonal W2 position.

    Winners don't quit. Quitters don't win.

    FAR - < than 75, 10/2013, 2/2015
    BEC - < than 75, 10/2013
    AUD - < than 75, 8/2015, 1/2016

    ~ Winners fail until they succeed. Losers quit when they fail. - Robert Kiyosaki
    ~ I survived because the fire inside burned brighter than the fire around me.
    ~ Something will grow from all you are going through. And it will be YOU.
    ~ Right now you may not be where you intend to be, but it's where you need to be in order to get where you want to go.

    #1692187
    Missy
    Participant

    They HAVE to W-2 you if they dictate your hours of work, provide the tools required to do your job and require you to work in their location. It's the law. They can call you seasonal, they can call it temporary but they have to pay the employer taxes. If they actually said they'd 1099 you it's a huge red flag as to how they run their business and there's no way I'd get involved in that mess.

    Old timer,  A71'er since 2010.

    Finance manager/HR manager

     

     

    Licensed Massachusetts Non Reporting CPA since 2012
    Finance/Admin/HR Manager

    #1692209
    Tim
    Participant

    Sounds blatantly illegal what they are doing. They hire you as a contractor then bring you on as an employee? How do they justify that to the DOL? Unless your job changes substantially when they switch you to a W2 employee then they can't make a valid argument that you weren't an employee all along.

    edit: Yeah, what Missy said.


    FAR - 97 (10/12/17)
    BEC - 95 (01/15/18)
    AUD - 88 (04/06/18)
    REG - 89 (11/16/18)
    #1692227
    aaronmo
    Participant

    Keep in mind that you can also expense things you otherwise would not be able to…some of your cell, your medical insurance, IT, etc.

    I took a lower pay job in your situation than I probably should have, but I wanted the public experience as quickly as possible, and small firm = learning across the board knowledge. It was worth it to me to take a hit for a year or two.

    AUD - 96
    BEC - 84
    FAR - 89
    REG - 86
    Aaron and always remember, YMMV

    I profit from your CPE frustration. You're welcome.

    #1692229
    aaronmo
    Participant

    One of the few things I truly am a subject matter expert on is contractor vs w-2 qualifications…and many don't get that determination right. Hiring from a contractor to W-2 is a red flag…100%…but if they know what they're doing, they can likely put enough window dressing on the pig as to get away with it.

    I say this as being the guy who put lip stick on a pig in several contractor audits…and won.

    AUD - 96
    BEC - 84
    FAR - 89
    REG - 86
    Aaron and always remember, YMMV

    I profit from your CPE frustration. You're welcome.

    #1692245
    Bourne
    Participant

    As the above poster's are correct, many many businesses act in this way. If you're in a pinch and it lines up with what you want to do, I say go for it. You can at least get the experience, pass the exams and make some money. If afterwards you don't agree with what they're doing, move on to a different firm. But in my experience, there's more firms out there that do this than you would think.

    AUD- 82
    REG- 86
    FAR- 86
    BEC- 88
    #1692269
    aaronmo
    Participant

    You do have to be very, very careful when you're playing in this shade of gray, and you really have to understand the prioritization of what state/fed guys are looking for. The worst thing you can do is not warn your “contractors” about the tax implications…because they're the ones who will trigger the audits. You have to make sure they understand and agree with the arrangement. Keep the deep pockets theory in mind (you should ALWAYS use this approach as best practices, regardless of statute); if the employee/contractor doesn't have the cash to pay, it's a much easier bet to get it from the employer/b2b if you can put them on the hook.

    I charge for specifics about what exactly to do and the areas to focus most on 😉

    AUD - 96
    BEC - 84
    FAR - 89
    REG - 86
    Aaron and always remember, YMMV

    I profit from your CPE frustration. You're welcome.

    #1692275
    Recked
    Participant

    If you factor in the expenses you will be able to claim against the income you might actually come out ahead. The additional SE tax is only paid on bottom line profit, not the amount of income you bring in. Start your day in your home office, then travel to the work site, etc. Lots of expenses to be claimed against this income.

    Also, agree with the above, this is very illegal of them to do, unless they have the contract worded in a very specific way.
    Even if they do pay you on a 1099 you can loop hole the SE tax by claiming that they incorrectly classified you as a sub contractor instead of an employee.
    https://www.irs.gov/newsroom/misclassified-workers-to-file-new-social-security-tax-form
    Form 8919
    https://www.irs.gov/pub/irs-pdf/f8919.pdf

    I would only file the 8919 if things don't work and result in a full time position.
    It's essentially the same as dropping a dime on your old boss.

    Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

    FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
    AUD-88 12/7/17 (3 wks, 85 hrs, Roger 1000 MCQs no SIMs hail mary)
    REG-96 1/18/18 (6 wks, 110 hrs, 1400 MCQs, no SIMs)
    BEC-91 2/16/18 (4wks, 90 hrs, 1240 MCQs)

    #1692295
    sacpa
    Participant

    Missy, Tim, aaronmo, Bourne, ReckedRacing:
    Thanks for your responses.

    When I asked them about reporting a 1099 & W2 in the same year, they replied saying that they will guide me as to how to handle it. The contract document is long with 16 pages. Although I did not go through it fully since I just got it yesterday, I suppose there is lot of window dressing involved as Aaron & ReckedRacing mentioned.

    Aaron: While I am tempted to accept the contractor position for all the pros mentioned, especially to learn a lot & which the employer also promised, I don't want to get into complications when filing taxes. My hands are full already.

    ReckedRacing: Thanks for the links. But I really don't see myself filing all those if need arises. Our return is simple with just one W2 in addition to mine & sale of stocks. Claiming expenses does sound attractive. Hired as contractor & then as W2 employee is what that's complicated before I even started my research.

    I will ask for some more time & make a decision. Hope I had applied for other seasonal jobs while I waited for this Accounting firm to interview me for the 2nd round.

    Winners don't quit. Quitters don't win.

    FAR - < than 75, 10/2013, 2/2015
    BEC - < than 75, 10/2013
    AUD - < than 75, 8/2015, 1/2016

    ~ Winners fail until they succeed. Losers quit when they fail. - Robert Kiyosaki
    ~ I survived because the fire inside burned brighter than the fire around me.
    ~ Something will grow from all you are going through. And it will be YOU.
    ~ Right now you may not be where you intend to be, but it's where you need to be in order to get where you want to go.

    #1692305
    sacpa
    Participant

    Missy: Like you, I am also on the older side.

    I am 54 year old Asian woman with no degree in Accounting & just 5 years of seasonal tax experience. I took the CPA route since I was passionate about it & to sort of compensate my disadvantages. There is more discrimination than that is admitted &/or revealed.

    I understand that even in mid sized or small CPA firms, one does not always get assigned a particular area that you would like to gain experience in. The fact that they are offering job duties in an area in which I would like to focus on is what is attracting me. But the dual status again is a warning to be cautious.

    Winners don't quit. Quitters don't win.

    FAR - < than 75, 10/2013, 2/2015
    BEC - < than 75, 10/2013
    AUD - < than 75, 8/2015, 1/2016

    ~ Winners fail until they succeed. Losers quit when they fail. - Robert Kiyosaki
    ~ I survived because the fire inside burned brighter than the fire around me.
    ~ Something will grow from all you are going through. And it will be YOU.
    ~ Right now you may not be where you intend to be, but it's where you need to be in order to get where you want to go.

    #1692322
    sacpa
    Participant

    Following are the excerpts from the contract:
    Legal compliance: The contractor will provide the services in accordance with the standards prevailing in the Company's industry, and in accordance with the applicable laws, rules & regulations. The Contractor shall obtain all permissions & permits required to comply with those standards, rules & regulations.

    Taxes: The Contractor is solely responsible for the payment of all income, social security, employment-related or other taxes incurred as a result of the performance of the services by the Contractor under this agreement, & for all obligations, reports, & timely notifications related to the taxes. The Company has no obligation to pay or withhold any sums of those taxes.

    There is also another paragraph saying that the status is independent contractor & not a joint venture & that the contractor has the right to control the manner in which the services are performed in whichever location. But I suppose there is a thin line as to who controls the manner in which the services are performed. If I am right, it looks like all the work terms are for W2 but I have contractor status & have to follow the rules related to it.

    Winners don't quit. Quitters don't win.

    FAR - < than 75, 10/2013, 2/2015
    BEC - < than 75, 10/2013
    AUD - < than 75, 8/2015, 1/2016

    ~ Winners fail until they succeed. Losers quit when they fail. - Robert Kiyosaki
    ~ I survived because the fire inside burned brighter than the fire around me.
    ~ Something will grow from all you are going through. And it will be YOU.
    ~ Right now you may not be where you intend to be, but it's where you need to be in order to get where you want to go.

    #1692331
    Recked
    Participant

    Not sure what state you are in but NYS DOL would have a field day with that contract.
    Just because you CALL someone a contractor, doesn't make it right. You can check the IRS checklist for the criteria they use to classify a worker/employee vs an independent contractor.
    If the job offer and work are appealing to you then by all means, jump on it.
    I provided the link to that form as a safety net for you. If they work you to the bone and then cut you lose after tax season, I'd file that form as payback for them treating you unfairly.
    If you want to continue the working relationship with them, then I strongly advise against using that form, as they will possibly end up in a world of hurt from it.

    1099 to W2, I would not worry about that. The IRS doesn't care as long as they get their money.
    I am not aware of any number matching that would trigger an audit from receiving both forms from the same paying EIN.
    I have multiple clients who receive both W2 and 1099s from the same employers for various reasons. Probably not technically correct, but no audit issues to date.

    Your return WAS simple. If you have a 1099 and intend to claim expenses you are now in Sch C territory, and all that goes along with it.

    I am sure they will “guide” you on how to file your return…

    Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

    FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
    AUD-88 12/7/17 (3 wks, 85 hrs, Roger 1000 MCQs no SIMs hail mary)
    REG-96 1/18/18 (6 wks, 110 hrs, 1400 MCQs, no SIMs)
    BEC-91 2/16/18 (4wks, 90 hrs, 1240 MCQs)

    #1692334

    It's more of a matter of what is the most important to you. Experience vs. higher pay. Have both if you can. Being an employee and/or being a contractor has its pros and cons, which mostly were mentioned above. The bottom line is, which one is beneficial, and have more money left in your bank account, after all the work/business related have been deducted. Also, at the same time gaining that valuable experience.

    The integrity of an accounting firm/company is important. But sadly, some employees (esp. non-CPAs) are sometimes trapped or don't have much choice, of working for a company that has a ‘very sophisticated accounting system', that can only be intervene/refereed by an independent auditor, including the IRS.

    In your case, get the experience you need, and the pay you can live with. Worry about your own tax implications with the IRS, and let your employer/client worry about theirs.

    The nice thing about reviewing for your US CPA exam, it gives you guidance and have that confidence of filing your tax return with no worries. This is due to, properly accounting for your total income and total expenses, either/both for being an employee or/and being a contractor.

    Being a contractor can be time consuming, since you have to account for all the inflows and outflows of your self-employment. But it can be rewarding as well. You'll be able to save money for doing your own bookkeeping, accounting, tax savings, personal financial planning, and keeping the integrity of your own financial records are self-satisfying. Most of all, it gives you that valuable additional experience. You're going to be a US CPA after all.

    Good luck.

    AUD - 49
    BEC - NINJA in Training
    FAR - NINJA in Training
    REG - 55
    Passed: AUD (75%'08/77%'17), REG (76%'09) & BLaw(77%'99); highest on FAR (63%'11/'15) & BEC (63%'11). Credit Hours: USA(PH)-BCom'85(4yr-grandfathered); UBC-(DAP'02/'19); DC-(BBA-Acctg.'22-4th yr)=over 150 hrs credits
    #1692335
    aaronmo
    Participant

    PA would tear that apart (it's missing all of the critical elements). I don't want to give lessons on how to grey the line, but that's distinctly not it.

    AUD - 96
    BEC - 84
    FAR - 89
    REG - 86
    Aaron and always remember, YMMV

    I profit from your CPE frustration. You're welcome.

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