My husband has been offered a job at a large company on the other side of the country. He told them he would commit to a long-term contract of up to two years, but that we did not want to move permanently. This was okay with the employer.

The search firm who recruited him said they would "hire" him for the length of the contract, because he has not set up an LLC and the employer will only do 1099s with LLCs and corporations. He will be an employee of the search firm. The search firm offers benefits but they are not great. Cost of health insurance would be $1,800 per month for our family. There is a 401k plan but no matching. No paid time off.

I have two questions:

  1. Is it still best to go W-2 rather than 1099 tax-wise? (All work will be on-site at the employer, position won't require travel,few write-offs that I can see);

  2. We are currently on Medi-Cal so pay nothing for health insurance. We have been living off taxed and penalized withdrawals from our retirement accounts for three years. The search firm requires a 60-day waiting period before we get coverage. Can we sign up for coverage through Obamacare until the health insurance plan kicks in or do we have to buy our own coverage? Once we leave the state, we won't be covered, and won't qualify for Medicare anyway once he has a salary again.

2 Answers 2


I don't think anyone can give you a definitive answer without knowing all about your situation, but some things to consider:

  1. If you are on a 1099, you have to pay self-employment tax, while on a W-2 you do not. That is, social security tax is 12.4% of your income. If you're a 1099, you pay the full 12.4%. If you're W-2, you pay 6.2% and the employer pays 6.2%. So if they offer you the same nominal rate of pay, you're 6.2% better off with the W-2.

  2. What sort of insurance could you get privately and what would it cost you? I have no idea what the going rates for insurance are in California. If you're all in generally good health, you might want to consider a high-deductible policy. Then if no one gets seriously sick you've saved a bunch of money on premiums. If someone does get sick you might still pay less paying the deductible than you would have paid on higher premiums. I won't go into further details as that's getting off into another question.

  3. Even if the benefits are poor, if there are any benefits at all it can be better than nothing.

The only advantage I see to going with a 1099 is that if you are legally an independent contractor, then all your business expenses are deductible, while if you are an employee, there are sharp limits on deducting employee business expenses. Maybe others can think of other advantages.

If there is some reason to go the 1099 route, I understand that setting up an LLC is not that hard. I've never done it, but I briefly looked into it once and it appeared to basically be a matter of filling out a form and paying a modest fee.


The tax savings of being 1099 can be significant. It depends on your salary, and what you can deduct. You may want to consult with an accountant.

The social security tax, for the self employed, is 12.4% of profit not on revenue. If you can write off more than half of the income as expenses then you could be paying less than a w-2 employee.

Also you might make a higher salary as a 1099, it is rare the offer the same compensation for a W-2 as a 1099 as the former has higher expenses for the employer.

It is hard to know without actual numbers, actual expected expense deductions and so forth. Which is why I would suggest consulting with an accountant. You may want to talk to one in the state where he will be working rather than where you live now.

  • 1
    Your comment about expenses is true, but I have never had a job where my job-related expenses came to over half my income. If that's the case in your situation, absolutely. Actually it would take considerably less than 50%, as the savings on income tax would also be significant. Note the OP said she expected expenses to be modest. As to whether they offer the same salary for W-2 as for 1099, yeah, that's a big if. I'd expect the 1099 salary to be higher exactly because of employment taxes and benefits.
    – Jay
    Commented Aug 27, 2014 at 19:58
  • Not that I would do it, but I know people who deduct their whole grocery bill as business related expenses, as well as hiring a "assistant" that does the cooking and cleaning at their residence. For example Google provides food in the break rooms and bathroom attendants, and they deduct that as expenses. Being super aggressive, I think you can easily get there while running the risks of a negative audit.
    – Pete B.
    Commented Aug 28, 2014 at 12:40
  • 2
    I think the technical term the IRS has for people who do this is "inmates". I can't imagine that the IRS would allow such deductions. You could probably justify taking a deduction for a home office and business use of your computer. But the IRS specifically disallows deducting a salary paid to a member of your own family, etc. You could, of course, get away with it if you were never audited, but if caught, I think you'd be facing jail time for tax fraud. :-)
    – Jay
    Commented Aug 28, 2014 at 13:28
  • Inmates....lol! Nice Jay!
    – Pete B.
    Commented Aug 28, 2014 at 15:08

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