As America’s workplace evolves, one thing that has become clear is that the work-from-home (WFH) model has shown to be productive and even cost effective in many circumstances. Many businesses with major investments in their office buildings and campuses, on the other hand, are unlikely to want their staff to work from home indefinitely. Working with your company to convert into an independent contractor may be an option for workers who do not want to comply with return-to-office rules.
The National Labor Relations Board said at the end of 2021 that it will reconsider the present legal criterion for assessing whether workers are independent contractors or employees. 1 Many corporations now identify employees as independent contractors, but they still have a lot of influence over how they do their tasks. However, they do not give the same benefits as a full-time employee. It may become more beneficial for independent contractors when these rules evolve, especially if they build their own perks through an efficient pricing mechanism.
The number of sole proprietorships is expected to increase in 2020, according to business analysts. 2 In the United States, there are around 57 million “gig workers,” with forecasts that they would account for up to half of the workforce by 2023. 3
Working for yourself has its downsides, one of which is the lack of a 401(k) plan with a corporate match. Self-employed people, on the other hand, have a plethora of possibilities. Increasing your hourly income is one of the aspects of switching to independent contractor status. If your current hourly wage is $30, you’ll need to charge $50 or more per hour to pay your expenditures, which include equipment, health and life insurance, and a retirement plan. Please contact us if you’d like to learn more about the many retirement plans accessible to self-employed people. Meanwhile, we’ve highlighted a few options below.
401(k) Plan for Individuals
You may take advantage of a considerably bigger employer match with an individual 401(k) — also known as a solo 401(k) — as long as your firm generates the necessary income. Self-employed people can contribute up to $20,500 in 2022, with an extra $6,500 if they are 50 or older. The best part is that you may donate up to another 25% of your company’s net earnings, for a total contribution of $61,000. 5
Traditional Individual Retirement Accounts (IRAs)
Traditional IRA contributions are fully or partially tax deductible, depending on your filing status and income. Traditional IRA contributions are tax-free until they are withdrawn. If the money is taken out before the owner reaches the age of 5912, he or she may be liable to a 10% penalty as well as ordinary income taxes. 7
While contributions to a Roth IRA are not tax deductible, eligible distributions are. Other benefits include the possibility to contribute after the age of 7012 and the elimination of yearly mandated minimum distributions after the age of 72.8. The total contribution you may make to all of your IRAs for tax years 2021 and 2022 is set at $6,000 ($7,000 if you’re 50 or older), or your taxable salary for the year (if less).
Content prepared by Kara Stefan Communications.
1 Fisher Phillips. Jan. 3, 2022. “Unhappy New Year for Gig Economy Companies? Labor Board Will Reconsider Independent Contractor Standard in 2022.” https://www.fisherphillips.com/news-insights/gig-economy-companies-labor-board-independent-contractor-2022.html. Accessed Jan. 17, 2022.
2 Tyler Gallagher. Forbes. Jan. 12, 2022. “Entrepreneurship Forecast For 2022: Stats, Trends And Analysis.” https://www.forbes.com/sites/theyec/2022/01/12/entrepreneurship-forecast-for-2022-stats-trends-and-analysis/. Accessed Jan. 17, 2022.
3 Nasdaq. Jan. 12, 2022. “Gig Economy Retirement Planning.” https://www.nasdaq.com/articles/gig-economy-retirement-planning. Accessed Jan. 17, 2022.
4 IRS. Nov. 15, 2021. “Retirement Plans for Self-Employed People.” https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people. Accessed Jan. 17, 2022.
7 IRS. Jan. 3, 2022. “Traditional IRAs.” https://www.irs.gov/retirement-plans/traditional-iras. Accessed Jan. 17, 2022.
8 IRS. Nov. 5, 2021. “Roth IRAs.” https://www.irs.gov/retirement-plans/roth-iras. Accessed Jan. 17, 2022.