Hi,

I have graduated in dec 2009 and I am on Post Completion OPT and working as avn independent contractor on 1099 basis for the last one month, recently I got an offer from another employer to work on W2. But the rate is lesser than 1099. If I switch to w2 is the taxes I paid are going to be lesser than 1099 or not? And If I am on 1099 can I apply for OPT extension. Can you please help me out in this issue.

Thanks and Regards,
Rahul

Rahul:

While on OPT, the tax rate is the same whether you get paid under a Form 1099 or under Form W-2, because you are EXEMPT from FICA (Social Security and Medicare) or self-employment taxes. You MAY get to deduct some of your employee business expenses on the Schedule while working under the Form 1099, but you also have to have the self-discipline to put aside a set amount of each paycheck to cover your tax obligations when it comes time to file your tax return.

Once you convert to H-1 or H-1B, then the W-2 is the better option because you pay only HALF of the tax due; the employer pays the other half.

Thanks for your advice. So If I am on 1099, what % of amount Do I need to deduct, If I am getting $25 per hr on monthly basis and Do I need to file the tax quarterly or yearly?

You will not pay FICA taxes, but you will pay income taxes. You may make estimated tax payments (quarterly payments). If this is your first year, you need to worry about estimated tax payments. Your U.S. Tax Return: Tax Filing by Self Employed Sole Proprietor or Independent Contractor (http://taxipay.blogspot.com/2008/04/tax-filing-by-self-employed-sole.html)

For ONLY income tax, put aside 20% of each paycheck. That should cover both your federal and state income tax bills come 15 April 2011.

Thanks for replying to my questions

Glad to help!