Low Taxes Are Paid By Agency-Employed Consultants
Doesn’t ‘low taxes!’ grab your attention? American workers are subject to two types taxes – one of them is federal income tax and the other is F.I.C.A.
Federal Income Tax
This tax applies to everyone, regardless of whether it is being withheld by the employer or not. It is paid annually. Simply put, independent consultants who work for themselves and who file I.R.S Form-1099 are all subject to the same tax bracket as their W-2 consultant counterparts. Independent consultants have to save enough around the year to cover their annual Federal Income tax bills. Sometimes independent consultants also have to pay State and local income taxes, as these taxes are applicable in many states.
Independent consultants, as well as agency consultants, pay the same amount of Federal Income Tax if their gross yearly earnings are the same, but it is paid differently.
This tax is mainly paid each period to fund Social Security and Medicare – it is applicable to all workers. The rate on this tax is 15.3%.
Agency employed consultants pay 7.65% of their taxable income, whereas independent consultants pay twice that amount. This means that an independent consultant pays an additional $4,000 more in tax than their counterpart who works through an agency.
Agency Employed Consultant Benefits
Such consultants get non-wage benefits such as 401 (k) plans, health and welfare plans and even holiday pay. These benefits can be highly beneficial, financially and otherwise. Some agency consultants are also offered total compensation packages.
A consultant who is earning about $50,000 a year benefits by having paid two weeks vacation, which can be valued around $2,000. Consultants also save up to hundreds or thousands of dollars per year on federal taxes, due to company-sponsored retirement saving plans. The savings due to health and insurance benefits can be sometimes up to 15-20% of their annual health salary.
If you have some experience in the field of consultancy, you may have wondered about non-wage benefits:
o An agency consultant who makes $50,000 probably gets five days paid vacation (or more), which is worth about $1,000 before taxes.
o 401 (k) plans offer agency consultants a valuable tax shelter that will save them about $500 a year or more while paying Federal Income tax. These savings can then be converted into future investment gains.
o Medical and dental coverage is highly beneficial if an employer offers it. In addition, sometimes agencies help defray the cost of these medical benefits, thus reducing the payable taxes for employees even further.
o Fringe benefits such as life insurance, vision coverage and dependent life insurance go a long way into savings.