difference between W2, 1099 and c2c

[BrandonOil]

Sorry, if it is repeated and I spammed. I just have lil time left and hell is going at work and just got potential offer from someone.

They said it is a W2 but not 1099 and c2c. Can someone give a brief description? Thanks!

[JCPOPESCU]

Here's what I understand and I will preface my remarks with I am not a tax professional.

W2 usually means the employer gives you a pay CHECK and a pay STUB.  The stub shows how much was deducted for social security, federal, state, local, and any miscellaneous witholdings such as wage garnishments if applicable.  The amount on the check reflects your rate less the with holdings.  

1099 means, basically, you're paid without any with holdings however the amount in question was reported to any taxation authorities.  You would have to report 1099 wages as income and would, probably , not be eligible for any deductions from the taxes already taken out had you been paid on W2 Terms.  

C 2 C or "corporation to corporation" means they are treating you as a corporate entity instead of an individual.  Usually this is reserved for people who are also incorporated as an INC, LLC, LLP, S-Corp, or other  with an EIN number . 

In this case you're solely responsible for your own record keeping and , depending on how profitable (or not) your particular business is you may pay taxes on those earnings that are treated as profits.   The thing here is you should be an actual corporate entity to qualify for these particular compensation terms.

[0xFFFFFFFF]

W2 is normal salary, they withhold state and federal taxes, ssn, and medicare, you probably pay state unemployment and disability, etc.  The good thing is, if W2 pay is not delivered on schedule, in most cases the state will come down with a hammer.  Basically, W2 guarantees your money is paid and on time.

1099 and c2c is contract only.  You get a check.  With 1099 you probably pay a quarterly estimate, and both sides of your social security.  With C2C your corp probably pays you a salary and withholds from you and submits estimated taxes quarterly.  Your checks may be 30 to 60+ days late, and if they don't pay, you have to take them to court.  On the positive side with W2 and c2c you can generally deduct a lot more stuff, deduct for your own health insurance, even deduct a home office if you have a little nerve, deduct your PC, deduct your mileage to work.

[DW]

In terms easy to understand and remember:

W2 is temporary employee, you get a pay check like a regular employee with tax withholdings, it the most common and easiest way of doing things

C2C is when you register a corporation, there are tax advantage to doing that, it is complicated and if you do not know, stick to W2.  You are not really cover by employment laws like the employee, they can "forget" to pay you for example...

1099, for the stuff I do is not appropriate and is not really beneficial to me...  There is no legal or tax protection here...

I quote my rates as a minimum W2 rate while C2C I ask for a 10% more...  Not all clients can do a c2c for insurance and bond and license purposes

[BrandonOil]

Thanks guys, very good info, but more question sorry.

With W2 with hourly pay, do people clock-in and clock-out when employee come to work? How about overtime (more than 8hrs a day)?

Also in my situation it says, contract offer with potential for extension or small chance of being hired.

If you have done this before, how likely is it that it will end prematurely say 2-3 months? 

And any other things to pay attention to?

Thanks!

[0xFFFFFFFF]

There is seldom an actual time-clock, and there is usually a large fudge-factor, but most contract IT work requires reporting hours.

Overtime usually requires advance permission (or demand!), and is usually paid at regular rates up to some large number, at least 48 and may be as high as 60, before the rates bump.

Probably more contracts extend past the original period or convert to "perm" than end early.

Just go, be innocuous and productive, as long as the checks don't bounce.

There is certainly a trend to working from home as well, don't be surprised to be having regular meetings with people physically in ten different locations around town, much less in other cities and countries (cough India cough).  Try to imagine them naked, some of them probably are.

[DW · Accepted solution]

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BrandonOil wrote:

Thanks guys, very good info, but more question sorry.

With W2 with hourly pay, do people clock-in and clock-out when employee come to work? How about overtime (more than 8hrs a day)?

Also in my situation it says, contract offer with potential for extension or small chance of being hired.

If you have done this before, how likely is it that it will end prematurely say 2-3 months? 

And any other things to pay attention to?

Thanks!

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There is no physical clock, usually it's the same as with perm and modeled after client's policy towards perm like some flexibility weather you arrive at 9, 8 or 10 , lunch being a part of the 8 hours or not, the duration of the lunch...  If your lunch is not billable you have the flexibility to take as much as you want but it's specified then you have adhere to it.

Overtime is defined by the contact and it has to be explicitly permitted by the client, so let's say my contact defines overtime as double my normal rate after 9 hours, if stay an extra 15 min it's not billable (but that's usually understood).  So the project mangers verbally and explicitly approves overtime ("we have to work the weekends") then I bill for my time as overtime. 

I had an interesting situation when I started my contact, there was introduced to me as my manager, and he "verbally" authorized overtime on day one.  So I worked and billed for it, later I found out that he was not really a manager just some kid that was supposed to show me to my cubicle and assist with getting me setup...  The company paid on overtime anyways...  In another situation there was no budget for overtime, so I worked the hours but did not bill for that because I am a nice guy...  Later the management became a little to disrespective to my time so I made an issue of it.

Usually a contract will say 3+ month, the initial term is 3 month and it will automatically extended indefinitely and automatically, no-one mentions anything and you keep coming in as usual.  The reasons that may not happen: 

1. They are lying to you, the budget was only for 3 month and they said that it could go for more to get you to take the project (never happened to me in my 14 years of consulting). 

2. You are sooo bad that they just fired you after a week (never happened to me) but it is possible.

3. It did not workout and after 3 month you parted company.  Happened once, the project was to administrated and nothing was getting done and I was getting bored with the down time.

Normally it's terminated with a notice, usually after the end of a phase I would give a notice that it is time for me to move on, or the client will tell you that the budget isn't there or project ends, but I have never been surprised by a termination and you kind of always know the real reason...

I would talk to the manger and not the recruiter, the recruiter will say it's a 3+ month contract, the manager will say "we have some-one going on a maternity leave for 4 month” and that is that.

[userOpia]

I'm glad that there was a helpful answer and so much input on w2, C2C and 1099 contracting.  Most Dice members know that there are significant tax advantages of working through your own corporation, or working as a 1099, but there are also costs and risks associated with doing so.  There is another option that minimizes the tax liability as well as providing you with the same tax advantages of working through your own corporation; working as a w2 through an umbrella corporation.  There are multiple terms to describe the companies that offer w2 employment, offer group rates on health insurance yet allow you the opportunity to find your own job and negotiate your own rate.  Some call them umbrella companies, payroll companies, virtual employers, etc.  The point is that there really is no need to incorporate and do all your own paperwork when you can join an organization that does all the work and still gives you the writeoffs. 

To me, this is easier to get work as a 1099, less work and cheaper than being your own Corp and more tax savvy than a traditional W2.

Hope this information can still be a benefit.

[Projectguy]

userOpia,

Can you give an example of an Umbrella company you speak of. 

[UOFM]

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Projectguy wrote:

userOpia,

Can you give an example of an Umbrella company you speak of. 

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Projectguy:

My advice is to explore that "umbrella" idea VERY carefully.  There are several instances of these companies simply STEALING your (actually by contract, "their") customers.   You get cut out of the picture (and no, your contacts probably won't save you).

Unless you get both a Lawyer, and a good CPA, you are just dealing with hearsay about all of this "Incorporate" or "W2" as a bunch of tales told by idiots - "full of sound and fury .. etc.