When you’re offered a $200,000 opportunity, it might come in one of two forms: as a W-2 employee position or as a 1099 contract through your LLC. On the surface, both may seem equally lucrative—but the reality is more nuanced. Each path has major implications for taxes, flexibility, benefits, and long-term strategy. So, what’s better: a $200K contract paid to your LLC, or taking a $200K W-2 salary?
Let’s break it down clearly so you can choose what’s right for your goals.
What’s a W-2 vs. a 1099 Contract?
Before comparing, it’s essential to understand the difference:
- W-2 (Employee): You’re hired as an employee. Taxes are withheld from your paycheck, and your employer may offer benefits like health insurance, 401(k), and paid time off.
- 1099 Contractor via LLC: You’re hired as an independent contractor through your LLC. You invoice the company, pay your own taxes, and handle benefits yourself.
Tax Implications of a $200K W-2 Salary
Here’s what happens if you take the $200,000 as a W-2 employee:
- Federal and state taxes are automatically withheld
- Employer pays half of Social Security and Medicare (FICA) taxes
- You get a W-2 form at year-end for tax filing
- You can’t deduct business expenses
Your effective tax rate may be lower because of employer-covered payroll taxes, but you lose flexibility in tax planning.
Tax Implications of a $200K Contract Through Your LLC
If the $200K is paid to your LLC (as a 1099 contractor):
- You pay self-employment tax (both employee and employer share of FICA)
- You can deduct business expenses, such as home office, equipment, internet, travel, etc.
- You may benefit from the Qualified Business Income (QBI) deduction under Section 199A, which can reduce your taxable income by up to 20% (if you qualify)
- You can choose how your LLC is taxed: as a sole proprietorship, S-Corp, or partnership (if multi-member)
For more information on QBI and small business tax benefits, visit the IRS official site.
Flexibility & Control
LLC/1099 Pros:
- Choose your own working hours and clients
- Deduct a wide range of expenses
- Opportunity to build a business brand and long-term asset
- Potential to invest pre-tax through retirement accounts like SEP IRA or Solo 401(k)
W-2 Pros:
- Employer handles all payroll tax filings
- Benefits such as health insurance, retirement plans, and paid leave
- More job security and steady income
- No need for bookkeeping or estimated tax payments
What About Retirement & Benefits?
- W-2 employees often get access to employer-sponsored retirement plans like 401(k) with possible matching.
- LLC contractors must set up their own retirement plans (e.g., Solo 401(k), SEP IRA), but can contribute more than W-2 limits in some cases and deduct contributions as a business expense.
Hidden Costs and Considerations
| Factor | W-2 | LLC / 1099 |
|---|---|---|
| Taxes | Employer covers part | You pay full self-employment tax |
| Benefits | Usually included | You must pay for your own |
| Time freedom | Set schedule | Full control |
| Admin responsibilities | Minimal | High (invoicing, taxes, compliance) |
| Business deductions | None | Yes, extensive |
So, Which Is Better?
It depends on your goals.
Choose W-2 if:
- You want stability, benefits, and no admin headaches.
- You prefer predictable income and less tax complexity.
Choose LLC/1099 if:
- You value freedom, tax strategy, and building a long-term business asset.
- You are comfortable managing taxes and paperwork.
Final Thought
A $200K income is a huge opportunity—but how you receive it can significantly impact your finances. W-2 offers stability and simplicity, while LLC contracts offer flexibility and tax planning opportunities. Evaluate your lifestyle, risk tolerance, and long-term goals before making a decision.
For personalized advice, consult a CPA or tax attorney. You can also check IRS guidelines on self-employment taxes for more details.