W2 Vs. Corp to Corp

W2 Vs. Corp to Corp
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#1

HI- I work as a W2 employee (no benefits) for an employment agency. The agency is in NJ and I live and work in CT. This was a 5 month contract that keeps getting extended and is going into 3rd year. I am paid $62/hour. The end client that I work for would be amenable to me working for them corp to corp (I would have to start an LLC or some other type of company).
One obvious advantage is I would be able to collect the entire salary from end client (I would cut out the agency I work for). I have no idea what the markup is from the $62/hour that I get but from what I’m reading that could be 30-40% or more. I’m trying to figure out if this is worth it for me (assuming I could get out of my contract with the employment agency). My contract says that I couldn’t work for the end client for 18 months if I were to leave the agency. I know the agency pays half of certain taxes and from what I could tell the agency would have to pay me unemployment when the assignment ends. I know I wouldn’t have these benefits if I went corp to corp. Just wondering if this would make sense as I’ve never had an LLC or any other business and I’m not familiar with the pitfalls. Thanks!


#2

Hi, robxyz, and welcome to the community! There may be some legal benefits to being a W-2 employee where you live, and that would require talking to a labor law attorney. From a tax perspective, though, you could be better off as a contractor. If you were self-employed (and a single-person LLC counts), you could deduct your health insurance premiums and you’d have a lot more options to save for retirement. As a W-2 employee, you can contribute up to $6,000 to a traditional IRA (and its deductible if you don’t have a workplace retirement plan), but a self-employed person can contribute 25% of profits to a SEP IRA or up to $56,000 to a solo 401(k).

You can form an LLC pretty easily with an online legal service but I’d still recommend hiring a CPA, because self-employment taxes are more complicated and you really want someone who can guide you through this.

Hope that helps! Please feel free to ask any follow-up questions you might have. We love to help people get their finances in the best possible shape.


#3

Thank you very much lweston! Sorry for the late reply- I’ll have to do some more research on this but this is very helpful!