I have a high earning W2 job. I also have 1099 contractor work that brings in 50-100K annually. I currently operate as a sole prop for the 1099 work. I have been hesitant to switch my sole prop to an S-corp because I’m not sure it makes sense. I max out the SS portion of FICA at my employer and have been worried if I switch to S corp I may be paying more in SE tax than I need to because of my W2 job. How does the Self employment tax and FICA interaction work for high earners with a side gig?
Valid concerns. However as you mention, you only max out on the SS portion. There’s still the Medicare FICA tax (1.45 + 1.45) plus the Obamacare 0.9% additional Medicare over on W-2 and SE earnings over $250k. So a total addition burden of maybe $3.8k max.
I would first prioritize maximizing the write-offs under the sole-prop (i.e. home office, mileage, technology). Then see how significant the NET profit is from the side business. If you are still netting $100k from the 1099 business, the S-Corp is still a winner.