W2 Versus 1099: A Financial Faceoff Between Freelance And Full-Time

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Life expectancy for the U.S. population is 77 years and you can expect to spend around 13 of those years cumulatively at work (not counting overtime). Couple that sobering statistic with the pandemic burnout and you get a whole lot of people wondering to themselves if it might be time for a career change. 

It feels like every other LinkedIn post touches on The Great Resignation. In November of 2021, over four million people quit their job. While some of them surely jumped ship for another company, it’s safe to say more than a few decided to instead leap from employment to working independently. 

The life of a freelancer can be alluring to those who’ve spent most of their career in a nine to five job. Working for yourself offers flexibility in hours, workload, and location. Want to strategize in your sweatpants or become a digital nomad? Go for it, you’re a freelancer and you’re the boss. That’s one side of the freelance coin, to be sure, but flip it over and you might find uncertainty, inconsistency, and a roster of clients who all seem to think they’re the only one you’re working for. 

Conventional full-time employment offers an extra layer of security that freelancing usually doesn’t. With a W2 comes a fair amount of job security, set hours, reliable income, and most of the time, benefits. Most employers offer full-time staff more than an annual salary. At minimum, a full-time employee will typically receive health insurance, parental leave, and paid time off, while many companies will additionally offer a retirement plan, life insurance, wellness perks, and even an education stipend.

Another thing to consider is taxes. Employers and employees typically split payroll taxes, sharing the cost of the employee’s Social Security and Medicare contributions, while those filing a 1099 form will typically cover that entire cost on their own. On the deduction side, freelancers are usually permitted to write off work-related expenses while W2 employees face greater limitations. 

If you’re considering a move from salary to freelance, you aren’t alone. In 2021, 59 million Americans worked as freelancers, a number that represents 36% of the country’s workforce. Of those surveyed in Upwork’s Freelance Forward Economist Report, 44% reported earning more as a freelancer than as an employee.

Those extra earnings may come in handy for independent contractors. Freelancers often incur expenses that full-time employees do not. Registering a domain and building a web presence are common prerequisites for freelancers in most industries, and if you aren’t savvy in web design, you may have to hire someone to help you out. You will also need to look into registering your business for IRS purposes and possibly obtain a business license, dependent on your local requirements. 

Self-employed people are responsible for their benefits. There is no employer-sponsored insurance when you’re a freelancer. The good news is that there’s never been an easier time to figure out insurance on your own. Possibly thanks to the freelance movement and the Great Resignation, many insurance companies are making themselves more available online.

For medical coverage, HealthCare.gov provides access to health insurance quotes for residents of all but eighteen states. Once you create an account on the government site, you can explore the different policies available to you from a selection of insurance companies.

Life insurance is often overlooked by freelancers, but full-time employees sometimes have access to some amount of coverage through a group plan. If you’ve got people who financially depend on you, life insurance is worth looking into — and it may be more affordable than you might think. If you’re fairly young and in good health, term life insurance rates start at ten dollars per month. Companies like Bestow took the once drawn-out process of applying for term life insurance and made it fully online with instant quotes, no-medical exam applications, and same-day decisions.

While these extra expenses may influence your internal debate between freelancing and working for a salary, consider the hidden costs of being a full-time employee. Whether your office calls for suits or claims to support business casual, the cost of all those loafers and slacks can add up. Throw in the expense of your daily commute — time spent traveling, fuel, parking fees, and public transportation fares all go on a full-time worker’s tab.

There are pros and cons to being a freelancer, and perks and downsides to working full-time as an employee. If you require structure and financial stability, you may want to lean towards working for a set salary at a company that values you. If you have a little financial breathing room, promote yourself with ease, and are self-motivated, freelancing might work for you.

Whatever decision you make, whether you choose to freelance or work as a full-time employee, think it through. Do your research, find out the actual cost of your tentative move before you make it, and aim for success.

The information provided is not intended to offer any tax, legal or financial advice. It is always a good idea to consult your tax, legal and financial advisors regarding your specific situation. Furthermore, this article does not ensure your eligibility for any specific product.

Life insurance quotes provided by Bestow Agency, LLC dba Bestow Insurance Services in CA, who is the licensed agent. Term Life Insurance Policies offered by Bestow are issued on policy form LS181 and LS182, or state version including all applicable endorsements and riders, by North American Company for Life and Health Insurance®, Administrative Office, One Sammons Plaza, Sioux Falls, SD 57193. Products or issues ages may not be available in all jurisdictions. Limitations or restrictions may apply. Not available in New York. Our application asks about your lifestyle and health to determine eligibility in order to avoid requiring a medical exam.

Image sourced from Pixabay

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.