What do I need to know before accepting a contract position in the United States?

Question

I just received an initial job offer for a contract position as a PHP developer. I have never had a contract position before, so I don't know what the implications of this are, and how it differs from a salaried position with benefits. =/

What are some things that I should be aware of before accepting the contract position? (i.e. taxes, wages, benefits, etc)

It also mentions that I will sign a "day-to-day contract". What does that mean?

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Resources

Here are some links that I've collected so far:

• First timer's guide to contracting - Covers contracting in the U.K., but not the U.S.
• The contract employee's handbook - Talks about the differences between a "Contract Employee" and an "Independent Contractor"

Answer 1

Wages should be higher than average to compensate for a likely absent benefits package. Do not expect vacation time to be included, etc, etc. Everything must be negotiated for up front or you can be taken advantage of.

Answer 2

Unlike you have permanent residency of some kind (including citizenship obviously), you'll need a visa to work in the United States. A visa is tied to a particular job (although it is transferable in certain circumstances). So be very sure that the contract job you'll be doing is actually legal.

Secondly, a senior programmer in the US could reasonably be expected to earn $100k in salary. That salary will include sick leave (personal days), vacation time, retirement saving (pension/IRA/401k/etc), often the possibility of bonuses and health insurance of some kind.

The last is really important. Do not enter the United States without some kind of health insurance. I'm not kidding when I say you could slip on ice, break your arm badly and be up for $60,000 in medical bills. Traveler's insurance may cover you for a period but if you're working not traveling it may not (ie check).

All of this things are missing from a contract position so you need to factor them in. Without them a typical comparison is $100k in salary equates to about $100/hour contract rate. So if you're getting $50/hour ask yourself this: would you be doing this job for $50k? If not, you probably shouldn't take it.

You will be up for federal taxes, payroll tax (social security; employer and employee contributions), probably state taxes (some states don't have these eg Florida iirc) and possibly local taxes. Cost of living can vary wildly to the point where $30k per year in Iowa will give you a higher standard of living than $80k in a New York City.

Taxes are quite high in the US topping out at about 35-40% marginal rate plus 12.5% (?) payroll tax plus an "employer contribution" of another 12.5% (which you may or may not have to bear as a contractor). "Employer contribution" in this case is just a euphemism for "hidden tax" as it's money you could otherwise be getting but isn't directly visible.

Answer 3

Stop reading StackOverflow and go find a lawyer and an accountant.

Seriously: there is no standard template for contracts, and the whole point of legal representation in this kind of situation is to make sure you don't lose too much money if your client doesn't pay. Make sure you shop around.

You'll also need an accountant to recommend the right way of paying yourself - their expertise is to avoid paying taxes where you don't need to.

You're the software professional - they're the professionals for law and money. (I've tried to do everything myself in the past and got burned!)