The Rise of Men Who Don’t Work – And What They Do Instead

My statement was totally fair. I'd rather you reply to the core point then 6 replies about how FICA is paid.

I don't want to argue the mechanics of taxation on W-2 vs 1099! I was totally happy to accept 'danans' much more conservative numbers because we still end up with a maximum of $35,000 net benefit from $115,300 of compensation!

This is, with danans math, which is adjusted from mine by not even counting;

  Employer portion of health care cost
  Employer share of FICA
  Excluding direct employment costs
  Excluding indirect opportunity cost
  Use average disability payment, instead of max
  Exclude SSI payments
  Exclude rent control
  Exclude property tax circuit breakers (21 states, not CA)
  Exclude EITC

If my point still stands after all those are ignored, I think we can stop arguing the mechanics of FICA and realize there's a huge fucking social service+taxation problem in this country, so big that at many points of the curve from $0 - $150k, almost across that entire curve, earning more, earns you less.

Like I said, the only way to properly calculate all this is to code it all up and chart it. But the laws are insanely complex (we've proven that just now, right?) I don't think anyone has ever tried.

> As a result, the self-employment tax has a greater effective rate than the payroll tax, even though they have the same nominal rate.

To be clear, yes there is a different convention for quoting the "salary" based on W-2 vs 1099. I agree that saying "$100k of W-2 Salary" is like saying "$109,031 of 1099". In both cases you net $92,350 after payroll taxes.

To your point, the difference in total payroll expense is $1,381. I'm sure my overall point does not sway on $1,381. Yet this difference will be almost exactly offset by the $7650 deduction allowed against Federal income tax!

Bringing me back to, we are saying the same thing, in two different ways.

Sorry everyone for the rat hole, I wish I stated it more clearly at the on-set. I think there's a more important discussion to be had here.

(Note: I edited this about 15 times over 20 minutes since the first 'Submit'. Dragon's response came against an early draft! Sorry D.)

> This is nonsense?!

No, its a mathematical fact.

> I agree that if all you consider is the verbal, "I'll pay you $100k W-2" is actually agreeing to a payroll expense of (at least) 7.65% more than saying, "I'll pay you $100k 1099". But companies don't set salaries that way!

Its not a matter of how companies set salaries, its a matter of the mechanics of the calculation of the tax.

Granting for now your argument that total payroll expense for a W-2 employee is comparable to total payment to a contract employee that must pay their own self-employment income, and considering (for simplification) only W-2 income and payroll taxes in payroll expense for the W-2 worker:

For a W-2 employee with a $107,650 total payroll expense, they will have a $100,000 W-2 income, and $15,300 in payroll taxes (employee + employer share), and (excluding any issues which make W-2 payroll tax income different from W-2 income tax income) $100K in income-taxable income

For a 1099 contractor paid $107,650, they will have $16,470.45 in self-employment taxes and (excluding any other issues which make self-employment tax income different from income tax income) $99,414.77 in income-taxable income (due to the income tax deduction for half of the self-employment tax.)

> We pay employees based on the total cost of payroll. That was my point way up there about Macro Econ 101.

Self-employment taxes and payroll taxes bear a different mathematical relationship to total expenses to the party paying the employee. This is completely orthogonal to any argument about whether, in the case of the W-2 employee, they effectively bear the cost of the employer share of the payroll tax in the form of depressed nominal wages, as well as bearing the cost of the employee share.

> I can easily make up the difference by the higher Fed Income Tax rate (due to missing the $7650 deduction),

The W-2 employee doesn't really miss the deduction for half of the self-employment tax that the self-employed worker gets, since the income which pays half of their payroll tax isn't part of their taxable income to start with.

> local taxes, property taxes,

Local taxes and property taxes tend not to be directly income-contingent (and tend to be regressive in net effect), so they probably hurt your point rather than helping it.

Responding to your revised version:

> To your point, the difference in total payroll expense is $1,381. I'm sure my overall point does not sway on $1,381. Yet this difference will be almost exactly offset by the $7650 deduction allowed against Federal income tax!

Why would you compare the difference in payroll expense to the deduction against Federal income tax? What are you trying to get at with that? It doesn't make sense to talk about that.

Also, on your current numbers, the deduction the 1099 worker gets (half of the self-employment tax) is more than that ($8,340.87 vs. $7,650), but it still leaves the 1099 worker with a higher income subject to income tax than the W-2 worker, so it doesn't "make up" for anything -- the actual total tax difference between the two is greater than the additional payroll tax paid by the 1099 worker, since the 1099 worker will also pay greater income tax, all other things being equal.

You are just comparing a shit job to a good job, and well the shit job is shittier than the good one.

Let's run with your example - what would have been your boss opinion ? Or if your business is growing and you need more people, how will you treat them and how should they feel ?

You have a good job in a hot sector, enjoy it, don't try to generalise to everybody or other sectors. Actually, the article is all about people that don't share our luck.