Help
Rate Assistant
The Rate Assistant is a slightly less complex version of the Rate Calculator. Though it performs the exact same calculations, it doesn't require as much information and tries to make some intelligent choices about tax rates.
The most important result is the Actual Rate, the amount of money you should charge to achieve your compensation goal. When you're working Corp-to-corp or 1099 your effective and actual rates will be the same. But if you're working Contract W2, your employer is covering the their portion of Social-security and Medicare, and so your actual rate will be lower than your effective rate, reflecting the fact that your employer is providing additional compensation.
Rate Calculator
The Rate Calculator gives you the maximum flexibility to calculate your rates and allows you to enter values to customize your expenses and tax situation.
This calculator's most important result is the Actual Rate, the amount of money you should charge to achieve your compensation goal. When you're working Corp-to-corp or 1099 your effective and actual rates will be the same. But if you're working Contract W2, your employer is covering the their portion of Social-security and Medicare, and so your actual rate will be lower than your effective rate, reflecting the fact that your employer is providing additional compensation.
Salary Calculator
Using a rate you intend to charge, the Salary Calculator helps you determine your actual and effective salary for the year. Your actual salary is the rate times the number of productive hours you'll work. The effective salary is the actual salary modified by the taxes and expenses you'll pay out of pocket, which are subtracted, and the taxes and benefits covered by an employer (if any), which are added.
Compensation and Productivity
The compensation field is the amount of money you'd like to earn for the year after accounting for employment taxes and expenses.
Productivity is measured in weeks or hours per year. When you enter a value for productivity, include only those hours that you'll actually be able to bill. For example, if you plan to take the ten US federal holidays along with 4 weeks of vacation, then your productivity is approximately 46 weeks or 1840 hours per year. Though...that figure is probably a little high for a contractor. Remember that you will also spend some number of weeks just finding work and these should also be subtracted from your productivity.
Rate and Productivity
The rate field is precisely that, the amount you intend to bill clients per hour.
Productivity is measured in weeks or hours per year. When you enter a value for productivity, include only those hours that you'll actually be able to bill. For example, if you plan to take the ten US federal holidays along with 4 weeks of vacation, then your productivity is approximately 46 weeks or 1840 hours per year. Though...that figure is probably a little high for a contractor. Remember that you will also spend some number of weeks just finding work and these should also be subtracted from your productivity.
Taxes
As a contractor, the taxes you have to worry about are employment taxes that you wouldn't ordinarily pay as a fulltime employee. These include the employer's portion of Social-security, Medicare, and any state or local taxes such as yearly fees for owning a partnership or LLC. An example of the latter is the $800.00 yearly franchise fee levied by the state of California on LLC owners.
The Rate Assistant takes into account only the US federal employment taxes. If you have state or local taxes to add to your calculation, use the Rate or Salary Calculators.
Expenses
Expenses include items like medical and dental insurance, long-term disability, or retirement benefits. As a contractor, you must cover these with "post-tax" dollars. However, when an employer pays these for you (indicated by checking the boxes on the right), you get an added benefit from the fact that these come out of your compensation "pre-tax", so the net result is the cost of the benefit plus that cost multiplied by your marginal tax rate.