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Raising 5.4M, Reading Rainbow wants a full-time FCPX editor for 25K/year
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[Bret Williams] ” I’ve never heard of taxes being withheld for a freelancer and honestly it’d tick me off. You have to be an employee to have taxes withheld. If you’re freelance you don’t know where your next gig is coming from and being liquid is more important than withholding taxes.”
Freelancer is a casual term though, not something official used by the IRS for tax purposes. To the IRS someone is either an employee or an independent contractor. If you have a boss/supervisor, use their gear, their office space, work their hours, and/or get paid on a recurring basis (as opposed to lump sums per project), etc., then you are an employee. You might be a temp employee as opposed to a staff employee but you are an employee.
If you use your own gear, at your own place, set your own hours, have no boss/supervisor, and/or get paid in lump sums (ex. 1/2 up front, 1/4 at the halfway point and final 1/4 upon delivery), etc., then you are most likely an IC.
A downside to being misclassified as an IC is it puts you on the hook for more taxes since the employer is not kicking in their part of SS and medicare. You also aren’t eligible for things like workman’s comp, disability or unemployment insurance (though the state might offer something comparable that ICs can buy into).
CA has really been cracking down on this recently and it’s a huge problem in the VFX community. I can’t remember seeing any recently, but a couple of years ago there were billboards up in Los Angeles w/a hotline to call if you thought your employer was misclassifying you as an IC.
I mainly cut or AE on doc/unscripted movies and TV shows and there’s no way I’d qualify as an IC on anything I’ve worked on (save for some small side projects). When I get brought onto a show I’m using their NLE, their shared storage, getting paid on a recurring basis and answering to producers, post supervisors, maybe even a lead editor too. IC I ain’t and I’m not too keen on paying the taxes the company I’m working for is supposed to be paying. 😉
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Another problem for independent contractors is that Uncle Sugar wants his cut of what you make given to him in estimated quarterly payments, not necessarily one lump sum in April. You could make a nice haul on a job and not be able to spend any of it. Makes for a lot of financial uncertainty.
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[Bret Williams] ” I’ve never heard of taxes being withheld for a freelancer”
I get that every day with my union contract.
I prefer not to get a 1099
They are not paying their part of your social security that way, which means I have to pay mine and theirs.
No thanks
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[Andrew Kimery] “I mainly cut or AE on doc/unscripted movies and TV shows and there’s no way I’d qualify as an IC on anything I’ve worked on (save for some small side projects). When I get brought onto a show I’m using their NLE, their shared storage, getting paid on a recurring basis and answering to producers, post supervisors, maybe even a lead editor too. IC I ain’t and I’m not too keen on paying the taxes the company I’m working for is supposed to be paying. ;)”
I agree with everything you said. Except this last one. You certainly don’t think you’ll make more money from a company just because you’d be an employee and now the company is paying the taxes? Companies basically don’t pay taxes. I mean they do, but it HAS to get rolled into the cost of doing business. You get paid $50, $75, $100/hr as an IC or whatever for many calculated reasons. Essentially it’s what the market has deemed it will bear. If you decide you’d rather be an employee, the company isn’t going to be paying that same rate PLUS SS, medicare and health benefits. You’d likely be getting half your IC rate or less. It’s all the same to the company. When they determine a salary they’re adding up everything you’re going to cost. When they determine IC rates it’s the same thing. They’ll pay more because they don’t have to pay the taxes and benefits. And after 18 years as a 1099 contractor working out of my house and at facilities on their systems, I wouldn’t change a thing. I know what the tax rates are. I know I how to buy disability insurance, etc. I’ve had salary jobs. They were great jobs, but twice the work for half the pay. Of course I had health insurance benefits and they paid the extra hidden 7.5% of SS/fica and that amounted to something so lets say twice the work at 3/4 the pay.
I also enjoy the job security of being an IC. When the economy slows down work for an IC slows down. But when the economy slows for an employee, they often just get laid off!
There have been some issues around here as I mentioned where companies have been forced to make sure their ICs go through an agency, especially if they want to treat them more like temp employees and just have them come in. The agency actually who the company is hiring. They provide optional benefits and do any withholding, etc. But that’s rare. Generally because someone was unhappy and wanted to be an employee and brought something to the attention of the IRS. But even then its a very grey area still. It was my understanding that the IRS has realized their definition, specifically about using others equipment, is a bit extreme / outdated. A company can certainly have employees and have them come in and work on the companies equipment. It’s really when they meet all the criteria of an employee that the companies get in trouble. Having them keep regular hours with no project assigned is the big flag. The whole “just come in we’ll find something for you to do” kinda situation. But as long as you have a billable project with a reasonable start and end, I’d say you’re a contractor even if you’re working on someone else’s NLE. If not, there are a huge number of fortune 500 companies in this town that are up the creek!
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I’d rather be liquid. Seriously. Have you looked at the penalties and even the interest rates for NOT paying your quarterlies? It took me a few years of freelance before I realized that if you don’t pay your quarterlies the penalties and interest, etc. depending on how much you made and all that are hundreds of dollars,(perhaps $350 or so) not thousands. My wife and I are both freelance, and come tax day, sometimes we have a bill of 20k. But we know it’s coming and WE stash that money away. And if we need it, we dip into it. And WE can make interest off it all year which would equate to more than the government charges in interest and penalties. They are the cheapest loan you’ll ever find. Well, lately rates have been low, but historically cheaper than a loan and certainly you’re better off than if you had an emergency and had to put something on your Credit Card! So if we were to send $4k or $5k to uncle sam every quarter that’s like operating without a contingency. We pay our bills on time. We pay our contractors on time. We don’t give the Federal government a free loan.
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You’re paying both parts in either case. That 7% is part of the allocation to your salary. Part of the overall cost that is you. Your benefits, your ss matching, and your salary. They can’t just create that money from thin air. I’d prefer to know what my government is taking from me vs. having it hidden. So many people don’t even know that their employer matches the SS tax. And that’s the way our gov would like to keep it.
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[Bret Williams] “You’re paying both parts in either case.”
I don’t believe that is right Bret.
With a W2 the employer is paying half of your SS and Medicare. You pay the other half.
If they give you a 1099 you have to pay all of it yourself. You must pay self-employment tax.
I went through this for years. ESPN would give out a 1099 and I would have to pay huge amounts in taxes quarterly.
I got W2’s from FOX and I paid a lot less in taxes. (doing the same exact sports) I quit working for ESPN on that alone unless I was paid under our contract which was a W2.
I just sat down one day and did the numbers, then I took it to my accountant who confirmed my numbers.
Also if you get hurt on the job working under a 99 you are on your own.
[Bret Williams] “So many people don’t even know that their employer matches the SS tax. And that’s the way our gov would like to keep it.”
If somebody doesn’t understand what they are paying in taxes they should have their tax preparer explain it to them. If they are too disinterested to do that, it’s not the government’s fault.
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All I’m saying, is when an employer offers you a job at a certain salary, the hidden 7% that they have to put in is part of their determination of what they can afford to pay. They would be pretty bad business people if they did not. When you hire somebody at $100,000 a year, as an employer you’re hiring someone at $107,500 a year. That’s what their cost is to you. Plus any other benefits of course. Likely, they have a number in mind. For example, they said to themselves, “gosh, we spent $120,000 on freelancers last year. Maybe we should just hire someone.” They then have to figure out what that someone would cost. They might budget … 100k salary, +7k SS match, plus 15k in benefits and insurance and other incidentals. Wait, that’s going to cost us 122k a year! So ok, we can afford 98k a year for an employee.
Whether you decide to be an independent contractor over an employee involves the same calculations, doesn’t it? What kind of an hourly wage will the market bear? How much do you expect to work? What does disability insurance, taxes and expenses cost? What will your take home pay be vs. an employee? And so on. You may decide it’s a wash, but an employee is there 50 weeks a year for the same take home pay as a contractor. What could you do with that free time? There’s a lot of good stuff on Netflix.
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[Bret Williams] “All I’m saying, is when an employer offers you a job at a certain salary, the hidden 7% that they have to put in is part of their determination”
I have to go work baseball so it may be a bit for me to fully get back
but
ESPN would call themselves paying you a “higher” day rate for events like say NFL
what I’m saying is I did the math. By the time I got done paying all the taxes that THEY didn’t pay I had more take home money working for FOX
I would tell other freelancers but they never actually did the math. I’m giving a real world example that I lived. Not something I’m guessing at for a discussion.
Most people assumed they would make more with the “higher rate” but I don’t like to assume.
I like to do math when it comes to my money.
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First- awesome that you’re going to go shoot some baseball! Closest thing I ever had was my first job out of college. I worked at GA Tech Athletic Association shooting and editing all their sports highlight videos and satellite feeds. 1993-1995. Nomar Garciaparra was there. Such a nice guy the few times I met him. Good times. Not much pay, but good times.
I’m glad you did your diligence and decided which company was the better deal. But comparing what one company will pay vs. what another will pay just determined that FOX paid better than ESPN. Not that getting paid via 1099 vs. W-2 is worse. I worked at 3 salaried jobs before I went freelance. I get paid twice as much, have a ton more free time, can write off my computers, phone, a portion of my utilities, etc. Insurance cost money sure. As does self employment tax. But I’m still way ahead. But I’m sure there’s a salaried job out there that’s a much better deal. I’m just not qualified for it!
Go have fun.
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