Author Topic: Mid year switch from 1099 to W-2  (Read 391 times)

dandarc

  • Walrus Stache
  • *******
  • Posts: 5454
  • Age: 41
  • Pronouns: he/him/his
Mid year switch from 1099 to W-2
« on: May 28, 2020, 09:38:28 AM »
Mostly just dumping my thoughts to try and get them out of my head. Considering taking a W-2 arrangement that would likely start on 7/1. Not thrilled with this change, but overall it appears to compare favorably to what I can get easily in my area, and there's a 0% chance my 1099 arrangement will continue beyond the current contract.

So I'd have for this year ~7 months of pay for 1099 work and 12 or 13 bi-weekly paychecks for W-2 work. I've filled out the case-study spreadsheet for this year to estimate the federal tax situation. My thoughts:

1. 401K. Company's 401K has a safe-harbor match, but other than that is not very good. Only fund with an ER < 1% is the S&P 500 fund at 0.62%. So my initial thought was to just do the 5% I need to for the match for 2020, then fully fund my solo 401K for 2020 based on the 7 months of 1099 work.
Plan actually does allow up to 2 in-service rollovers annually for what appears to be a $50 fee each time. Thinking the play long term is to avail myself of those each year - spend about 0.25% up front to get away from 0.5% or more in excess annual fees.

However, I'm finding that if I were to max-out the company 401K over the 2nd half of the year, the QBI deduction on my 1099 work goes up such that I'd save around $800 on taxes. Would require a return of excess contribution from my solo 401K though, as I've already put more than the employer-side amount in for 2020 so I need to go into more depth on how that might impact things.

2. Tax payments. Reason I used MDM's spreadsheet is to get a better handle on how much federal tax we will owe at the end of the year. Haven't made any 2020 estimated tax payments yet because the deadline was extended to July 15 for the first 2 due dates. I think the best option is likely to be using that additional amount field on the W-4 form - spread it out over the remainder of the year. Spreadsheet says self-employment tax + income tax = $24K, so enter W-4 such that about that much gets withheld over the 2nd half of the year.

Alternatively, I could just send the estimated tax payments - maxing 401K + the above mentioned taxes is likely to take up a lot of each check for the remainder of the year - be clearing maybe $2100 every 2 weeks while doing this. Of course, we'd have quite a bit less money up-front. If I went that route, I'd probably do 50% of what I think I owe in July, 25% in September, 25% in January.

May need to actually get into company's payroll system before deciding on this - if it is difficult to change W-4 elections, that might influence the decision.

3. HSA - I think I need to make sure to stop the auto-draft first month we're on company health insurance. No HSA-eligible plans from what I've been given. Overall health insurance should save quite a bit vs. our HDHP, but the lack of an HSA option is kind of aggravating none the less. And I don't think there is an FSA either.

 

Wow, a phone plan for fifteen bucks!