You're a professional. You have the skills and the confidence to work in many settings. You work your tail off. You're also a 1099 contractor who is considering turning down the option to be a W-2 employee.

So you ask yourself, if you have the option, why wouldn't you take it? What are the benefits to being a 1099 contractor rather than a W-2 employee?

Health Insurance

Wait, what? Health insurance is why I would take a W-2 job!

Well, that's a very 2009 perspective. The advantages of employer-sponsored health care declined sharply after the 2010 passage of the Affordable Care Act (ACA) and continue as Congress passes more legislation.

Most companies now have just two or three options of plans. It's hard to find only the coverage you need while the marketplace has more options.

It turns out going through an employer if often more expensive than getting insurance off the government marketplace. Employers usually require the employee to pay a percentage, often 50%, of the premium for the individual plus additional, (up to 100%) for dependents. The cost is often at least the cost of a similar ACA plan.

Additionally, if you are offered health insurance from your employer, you can't get that sweet government subsidy. Thanks to the Inflation Reduction Act of 2022 is you can get a benchmark plan at a cost capped at 8.5% of you modified gross income. If you make $65,000 a year, you will not pay more than $460 a month for the benchmark plan.

Contrary to popular belief, if you are a 1099 you will have more options for a lower cost than if you were a W-2.

Retirement planning

Again, I know what you're thinking. A retirement plan is why I would take a W-2 job! An employer-sponsored plan with matching contributions is nice, but having your own plan is often nicer.

A 1099 contractor is a business entity and as such, you can set up your own plan. There are several options, primarily a SIMPLE IRA, a SEP IRA, and a Solo 401(k), each of which have nuances too detailed to go into here. Like a W-2 employer plan, all of the options include the ability to deduct your contributions from your personal income and with some options, you can deduct your contributions to avoid paying employer taxes like FICA.

The difference is, that depending on the choice, you can contribute more and provide matching funds in a higher percentage than what employers traditionally offer.

The benefit of a such a plan for a 1099 contractor is that you get to determine which options work best for you. You're not restricted to the limited choices an employer offers.

Higher hourly wage

Generally speaking, a W-2 employee's hourly wage is significantly lower than a 1099 contractor's wage. The term "total compensation" encompasses not just the hourly wage but other "benefits" that employers pay for. For 1099 contractors, the total compensation is simply the hourly rate. For W-2s its the hourly rate plus the portion of health insurance premiums, sick days, and retirement matching. Employers understand this and pay a lower hourly rate to W-2s.

Limited overtime

As a 1099 contractor you can set your own hours. There are no limits. For W-2s, your employer is required to pay time-and-a-half if you work more than 40 hours a week. This is a strong incentive for employers to carefully track and limit the hours worked to 40 or less.

Tax Deductions

As a self-employed worker, you get to deduct specific expenses from your income before calculating your tax. Things you don't get taxed on as 1099 that you do as a W-2:

• Qualified Business Income: 20% of your actual post-expense revenue is tax free.

• Health insurance premiums: Any health insurance premiums not subsidized by the government are deducted from your income.

• Employee FICA contributions: W-2 employees pay income tax on their FICA contributions. 1099 do not.

• Business expenses: Home office, commuting costs, computer, cell phone, etc. There are many expenses that are at least partially deductible.

One thing being a W-2 employee does is make a lot of these decisions easy. But you're a professional. You have the skills and the confidence to work in many settings. You work your tail off. You can learn about each of these areas and use them to your benefit.