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RATE RECALCULATOR

Please use this calculator as a rough guide to understanding how switching from freelance to W2 will affect your tax bottom line.
THE ANSWER MAY SURPRISE YOU.

ASSUMPTIONS:

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  • Your tax advantage from business + retirement deductions are calculated at your highest marginal rate for an upper limit estimate.

  • Your expenses are tied ratably to your income. That means that if in one day, you earn 1% of an entire year's income, then you've also "earned" 1% of your business expenses.  That's how much you lose daily on W2.

  • But to be fair -- you win by not paying half of FICA or Self-Employment tax.  So that gets added back, while accounting for the tax deduction you get for paying the employer side of SE/FICA tax.

  • The NET of those two is your daily gain or loss due to being on W2.  If you lose, you add it to your rate (adjusted again for the tax on this new amount).  BUT if you GAIN... keep your rate the same.

  • Not included in this calculation are the compounded tax losses of retirement growth outside of a 401(k) or SEP-IRA.

  • Also not included: CA State Tax loss, which could be approx. another 9.3% x (Biz Expenses + Retirement), but the calculation can vary depending on whether you itemize on your state return, what your AGI is, and what your top CA marginal rate is.
     

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