If you are an S-Corporation, the company paying you the money only has to issue a check to your corporation for your services. And all you are is a “subcontractor” to them. Under tax law, and employer is not required to
issue a 1099 to a corporation, unless you provide legal services. And since of course there are no tax withholdings on the monies paid to you, there is no
issue of preparing W-2′s.

Subcontractors are generally corporations or “independent contractors”. Payments to subcontractors are considered normal business activity for any
type of business. Subcontractors are not considered “employees” for the main reason that no one has control over them to complete the job or service.

In that regard, subcontractors are not ever entitled to fringe benefits – health insurance, contributions to 401K plans – Simple IRA’s, etc., and expense reimbursements that the company would normally provide to their employees after they have met certain requirements; length of service, age, etc.

As an S-Corporation, all you do is bill for the services you’ve rendered at your normal billing rate plus any incidental expenses you may have incurred. All the employer does is issue you a check for that.

As an S-Corporation, you will responsible for the payment of personal income taxes, including Social Security, state licensing fees, any other
expenses including your overhead – insurance, telephone, utilities, etc.

And every year, you will have the responsibility to file S-Corporation Tax Returns, both Federal and State and payroll tax returns.

Sound too complicated?

Actually its not complicated at all.

Hire a CPA to set up your S-Corporation. You can do it yourself by purchasing
a corporate kit at your local office supply store, and then going on-line with your State’s Department of Revenue. The process of setting up an S-Corporation is first done with the state that you reside in. After the state gives you a corporate number, then you file an SS-4, application of employer identification number, then you file a Form 2553 – Application for an S.

Let a professional set up your corporation. “Compliance” or the procedures to create the corporation for Federal and State purposes can be complicated
and time consuming.

The cost of setting up an S varies. It can cost at least $ 250, but not more than $ 1,000.

What then happens is you will become a W-2 employee to your own company, so all the taxes (plus you would need to file in my estimate about 14 more tax returns) and regulations will be your problem, plus you also have the recording keeping requirement of any corporation (board meetings minutes, by-laws, etc.) to deal with.

A quick figure of the additional Social Security and Medicare tax alone will cost you $7.00 / hr.

There may also be benefits that you qualify for that you would loss. There is also an issue if you get hurt on the job, who will pay your bills?

This the every day concerns that an S-Corp has and does not include the effort in just doing the paper work to start one up.

If you are seriously considering become an S-Corp for a $9.00 raise talk to a small business attorney and an accountant to see what the true cost to you is going to be.