I'm an Italian consultant in the IT field, and I'd like to know what are the differences between being a consultant or an employee in the USA in respect to the same differences in Italy. I've already found a question about the difference in the USA between the two situations, but it's totally opinion base while I'm mostly interested on the fiscal aspects of it.
So, to set a reference frame, in Italy:
- An employee get paid regularly each month, for 13 or 14 times a year (plus one more, but don't want to complicate matters too much)
- Its monthly gross wage always includes healt insurance and retirement.
- Has a month of payed leaves each year (for holidays)
- Has no fiscal benefits (to simplify a bit)
The drawback is that even keeping into account all the benefits, its yearly gross is usually lower than a consultant's one.
A consultant on the other hand has no benefits nor regular incomes (if I get ill, I stay home and gain no money; if I go a week on holiday, nobody pays me, etc. etc.), but has a lot of fiscal benefits; mainly he can detracts lot of expenses from its yearly gross, like
- house rent
- car related costs (buying/renting/leasing, fuel, maintenance, insurance, etc. etc.)
- working tools expenses (a PC, for example)
and many more. Given that a consultant is usually paid more -up the last year laws didn't allow a company to fire an employee, so companies where willing to pay more for a consultant as it was a disposable and flexible resource-, lot of detractions usually help to raise the wage.
So, what it is the fiscal difference between being a consultant and an employee in the USA, keeping as a reference/example the above differences in Italy?
Just a few bits of additional information, 'cause as I'm giving a view on being a consultant in Italy I don't want to fool the occasional reader. All the above applies to my specific kind of consulting, there are many small and big differences between various kind of consulting that are not relevant for me in this context, and I didn't report a few possible drawbacks, namely (and again, simplifying a lot):
- all kind of consultants pay taxes ("plain" and retirement ones) a year in advance, on their estimated income for the next year
- some kind of consultants have to pay retirement taxes even if they have no income
- you are supposed to gain a certain amount of money (too complicate to explain here)
Again, this edit is just for general information purpouse, is not relevant for the question itself.