> You can't count it as a cost on you without adding the value of the employer share to your base income.

I agree with you, but I think I did that. I was trying to say $100,000 of payroll expense causes $15,300 of payroll taxes. Then the other taxes, and subsidy phase-outs, pile on from there.

> Its absolutely not even similar, much less "mathematically equivalent", to the latter alone, which is how you presented it.

You are right, they are not "mathematically equivalent", let me try again;

By "progressive subsidy" I mean a declining benefit as you earn more. That is, income from the government which decreases as you earn more. An example is Medi-Cal and ACA subsidies, food stamps, shit we didn't even mention SSI, etc.

By "progressive tax" I mean an increasing tax rate as you earn more. That is, an increasing number of cents out of each dollar in payroll expense is confiscated as you earn more. An example is Federal Income Tax.

The progressive subsidy offsets the benefit of early income, the progressive tax offsets the benefit of later income. The net effect is reducing the vast majority if not all of the the "Realized Family Benefit" from $0 - $150,000 of [household] payroll expense! I mean, it's disgusting to think about that way, but it's the economics of the system we've created.

> > You can't count it as a cost on you without adding the value of the employer share to your base income.

> I agree with you, but I think I did that.

You did not. Or you calculated the tax wrong, but it looks more like the former than the latter.

> I said $100,000 of payroll causes $15,300 of payroll taxes.

You said when "earning" $100k, you pay $15,300 of payroll tax, you did not say $100k of payroll causes $15,300 of payroll tax -- and interpreting earning in the usual way for such a discussion (i.e., the income shown on your pay stub subject to payroll tax) -- this is exactly correct; at $100k of such income, the total payroll tax (employer + employee share, Social Security + Medicare) is exactly $15,300.

If you are looking at the employer's payroll expense, however, though, that's not $100k, its at least $107,650 (the employee's income subject to payroll tax -- which includes the employee share of the tax -- plus the employer share of the tax.)

Are we not saying the same thing two different ways?

Earning $100k to me means providing services worth $100k. It's obvious when it's 1099 or self-employment. On a $100,000 '1099' or Schedule C income you owe $15,300 of payroll tax. I pulled the number straight from Schedule SE, Line 5. You will pay less income tax as a result, due to the 1/2 (e.g. $7650) deduction from income tax on Line 6. (I tried to account for that in my estimated $6500 of Federal Income Tax due, an effective 6.5% rate)

Somewhere along the line the Fed tricked us into subtracting 7.65% off our W-2 compensation before we even see it, and even got us to think we didn't even earn it. It's fully institutionalized now. It's like VAT being baked in and no one thinks they're paying the tax, but they are!

In my earning $100k example, the reported "Compensation" on the W-2 would be only 100,000 / 1.0765 = $92,893. My point is your W-2 is lying. The company is paying $100k for your services, and the IRS has their fingers in it before you even see it.

Anyway, we are arguing a very minor point to a very serious issue. I think I've provided enough numbers that are accurate enough to see the insanity of the whole system. It doesn't really matter when in the "pipeline" the $7,650 is confiscated. It's enough to know that FICA is 15.3% of every dollar up to $117,000 per person, $234,000 per household.

> Are we not saying the same thing two different ways?

No.

> It's obvious when it's 1099 or self-employment.

Ah, I see what you did -- you made the mistake of thinking that self-employment tax and W-2 payroll taxes are functionally identical, but just the way W-2 reports it is different and misleading. This is decidedly not the case, while the self-employment tax has the same rate as the combined employer + employee share of W-2 payroll taxes, the base value isn't comparable (since the latter is based on W-2 income, while the former is on the total, which is effectively equivalent to W-2 income plus the employer share of payroll tax.)

As a result, the self-employment tax has a greater effective rate than the payroll tax, even though they have the same nominal rate.

> Somewhere along the line the Fed tricked us into subtracting 7.65% off our W-2 compensation before we even see it, and even got us to think we didn't even earn it. It's fully institutionalized now. It's like VAT being baked in and no one thinks they're paying the tax, but they are!

Perhaps, but the problem with your analysis isn't disagreement over who is paying the tax, but it is how you calculated the amount of the tax and what the income is that goes with it. Payroll tax and self-employment tax server similar purposes and have identical nominal rates, but do not have equivalent bases. So, if you make a statement about payroll tax and how it relates to the income it is based on, but your logic is driven by self-employment tax and the income it is based on, the conclusion will be incorrect.

> As a result, the self-employment tax has a greater effective rate than the payroll tax, even though they have the same nominal rate.

To be clear, yes there is a different convention for quoting the "salary" based on W-2 vs 1099. I agree that saying "$100k of W-2 Salary" is like saying "$109,031 of 1099". In both cases you net $92,350 after payroll taxes.

To your point, the difference in total payroll expense is $1,381. I'm sure my overall point does not sway on $1,381. Yet this difference will be almost exactly offset by the $7650 deduction allowed against Federal income tax!

Bringing me back to, we are saying the same thing, in two different ways.

Sorry everyone for the rat hole, I wish I stated it more clearly at the on-set. I think there's a more important discussion to be had here.

(Note: I edited this about 15 times over 20 minutes since the first 'Submit'. Dragon's response came against an early draft! Sorry D.)

> This is nonsense?!

No, its a mathematical fact.

> I agree that if all you consider is the verbal, "I'll pay you $100k W-2" is actually agreeing to a payroll expense of (at least) 7.65% more than saying, "I'll pay you $100k 1099". But companies don't set salaries that way!

Its not a matter of how companies set salaries, its a matter of the mechanics of the calculation of the tax.

Granting for now your argument that total payroll expense for a W-2 employee is comparable to total payment to a contract employee that must pay their own self-employment income, and considering (for simplification) only W-2 income and payroll taxes in payroll expense for the W-2 worker:

For a W-2 employee with a $107,650 total payroll expense, they will have a $100,000 W-2 income, and $15,300 in payroll taxes (employee + employer share), and (excluding any issues which make W-2 payroll tax income different from W-2 income tax income) $100K in income-taxable income

For a 1099 contractor paid $107,650, they will have $16,470.45 in self-employment taxes and (excluding any other issues which make self-employment tax income different from income tax income) $99,414.77 in income-taxable income (due to the income tax deduction for half of the self-employment tax.)

> We pay employees based on the total cost of payroll. That was my point way up there about Macro Econ 101.

Self-employment taxes and payroll taxes bear a different mathematical relationship to total expenses to the party paying the employee. This is completely orthogonal to any argument about whether, in the case of the W-2 employee, they effectively bear the cost of the employer share of the payroll tax in the form of depressed nominal wages, as well as bearing the cost of the employee share.

> I can easily make up the difference by the higher Fed Income Tax rate (due to missing the $7650 deduction),

The W-2 employee doesn't really miss the deduction for half of the self-employment tax that the self-employed worker gets, since the income which pays half of their payroll tax isn't part of their taxable income to start with.

> local taxes, property taxes,

Local taxes and property taxes tend not to be directly income-contingent (and tend to be regressive in net effect), so they probably hurt your point rather than helping it.

Responding to your revised version:

> To your point, the difference in total payroll expense is $1,381. I'm sure my overall point does not sway on $1,381. Yet this difference will be almost exactly offset by the $7650 deduction allowed against Federal income tax!

Why would you compare the difference in payroll expense to the deduction against Federal income tax? What are you trying to get at with that? It doesn't make sense to talk about that.

Also, on your current numbers, the deduction the 1099 worker gets (half of the self-employment tax) is more than that ($8,340.87 vs. $7,650), but it still leaves the 1099 worker with a higher income subject to income tax than the W-2 worker, so it doesn't "make up" for anything -- the actual total tax difference between the two is greater than the additional payroll tax paid by the 1099 worker, since the 1099 worker will also pay greater income tax, all other things being equal.