The Downside of Self-Employment

The Downside of Self-Employment - picture of woman grabbing hair in frustration with laptop in front of her

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As many of you know, I quit my job early last year to pursue blogging and writing full-time.  And, for the most part, it’s been awesome.  After all, I am no longer a slave to the daily grind.  I don’t have to roll out of bed and put on full makeup and a monkey suit to make a living, and I hardly ever have to rush around.  I’m also able to get household chores done during the day, which has been a godsend for our family.  Another bonus: Since I quit working at around 4:00 p.m., I’m usually able to pull together a cheap and healthy homemade meal.  This not only saves us a ton of cash, but is much healthier for us as well.

Still, self-employment isn’t perfect.  In fact, there are plenty of things that I don’t like about working for myself.  Here are a few:

Self-Employment Taxes

We just did our taxes on Wednesday, and -HOLY SHIT- I’ve been robbed.  This is mostly due to the dreaded self-employment tax I am forced to pay.  Here is how the IRS explains it:

Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.

Basically, since self-employed people are considered the “employer” and the “employee,” they have to pay both halves of the Social Security and Medicare taxes that are usually split evenly between an employer an employee.  For self-employment income earned in 2013, that rate is 15.3%.  Yikes.

No Support

When I have some sort of technology problem that is over my head, I am literally screwed.  Any computer malfunction usually leads to tears and anger, and it’s really frustrating since I basically have no support.  Heaven forbid I lose important data, or suffer from a complete breakdown of our server one day.  That has happened before and I was fortunately able to recover my data.  However, it was a huge pain.  My old job wasn’t always pleasant, but at least I had technical support and help when I needed it.

No “Work Friends”

Even though I’m glad I left my old job, I really do miss my “work friends.”  We used to talk a lot and spend time together, and I miss having people to chat with on a daily basis.  I also miss working with Greg, and that has probably been the most difficult adjustment.  We worked together for six years!  Regardless, I am so happy for all of my “virtual friends,” including peeps I email and Facebook with and all of the awesome people that comment on my blog.  Without you, I would be so bored!

No Health Insurance

Everyone thought that Obamacare was going to do awesome things for the self-employed.  And it might, but not for high earners.  Not only do the self-employed pay the highest tax rate in the country (25.3 to 43.3 percent for 2013), but we’re now stuck paying higher premiums for health insurance due to changes caused by the Affordable Care Act.  For our family, our premiums will almost double from $394 per month to $737 per month for the cheapest plan available.  And, in addition to the $737 we’ll pay at minimum, we’ll have a $10,000 deductible to meet before the insurance pays a dime as well as a $12,700 out-of-pocket max for the year.  Awesome.

What do you think the pros and cons of self-employment are?  Would you rather work for someone else?

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  1. I’m lucky that I have a pretty relaxed/flexible workplace and job (I can work from home a bit, which is great, and the dress code is reasonably casual). I know a lot of people aren’t cut out for the 9-5 but I have a pretty sweet one.

    I imagine paying for your own health insurance would be a big hurdle for anyone in the US thinking about leaving the 9-5.

  2. It seems that you lose work friends, but you can spend more time with the people that you want to spend time with (rather than those that you are forced), including the people you used to work with.

    Nice to see a balanced view of self-employment. Still looks appealing though!! 🙂

    1. Ha! That’s true. I could hang out with old work friends if I wanted to… I miss them!

  3. The self employment tax hits a lot of people who had no idea it existed. I think having that AND having to pay quarterly taxes would throw a lot of people for a loop. Also getting your employer to pitch in for part of your health care is something else many corporate types take for granted when they finally see how much a self paid premium is. But can you really put a price on “freedom”?

    Side note, I forget and don’t really want to dig, but is your $10K deductible plan eligible for an HSA? When I was looking at Obamacare plans in this state, the ones I looked at were not eligible, which is insane considering $10K is what I would call High Deductible.

    1. Yep, I wrote a whole post on that exact subject:

      When I shopped in the Obamacare exchange, only a handful of plans were HSA eligible. There were tons of plans with an 8K, 10K, or even 12K deductible that you couldn’t have an HSA with. It is insane.

      My current plan is HSA compatible. When I buy a new plan this year (my plan is being discontinued in December), I’ll have to spend at least $750ish per month to get an HSA compatible plan.

  4. Re isolation, my dh goes to a happy hour once a week with local self employed ppl and telecommuters.

    1. I hope to meet some people soon. I know hardly anyone in our new town and it’s been so cold that I haven’t gotten out much at all.

  5. Catina Mount says:

    Hi Holly,
    Love your blog…I wish I could remember how I found you. I have been a fan for quite some time but have not commented. I’ll work on that. 🙂
    This is a great post! I work a full-time job but picked up a side-hustle last year and have been wondering about taxes, etc…you really opened my eyes!
    Thanks for consistently posting awesome topics!

  6. Yikes! The self pay health insurance premiums are wicked high! I would for sure have kept working if we were still in the states. I just got an insurance quote for us for a year, in plan hospital care for $370 and if l include outpatient care, would be $650 with no deductible and includes chemo if needed. The cheapskate in me is opting for the cheaper as cash prices are still cheap. I feel for you ;0( , getting penalized for making money..

    1. Yeah, it sucks….but I am glad that I’m able to make money in the first place!

  7. I think taxes right now are the biggest downside. I hate that my income goals have to be way higher than what I actually need, just because I have to include a ridiculous margin for taxes. Hopefully, as more and more people become freelancers, self-employed, and one-person businesses, we’ll see the tax laws change a bit in our favor!

  8. Yeah I’m about to get my taxes done for the first time as a business owner. I made myself put away 40% of what I earned. The big nut is the health insurance. But with these downsides I can’t imagine climbing the corporate ladder

  9. I would miss my pension and my awesome employment benefits if I became self employed. I have also worked from home before and I didn’t love the isolation. Like you, I’d miss having people around all the time (ie work people).

    1. I miss it sometimes. Other times I am glad that I don’t have to deal with anyone!!!

  10. Since starting to work in the 1980’s (showing my age), I recall folks ALWAYS complaining about healthcare cost if/when they broke out on their own. I suspect it will always be the single biggest expense for a freelancer. My only suggested recourse is to buy a healthcare mutual fund and try to profit from the industry.

    Oh, and speaking of taxes, did you see the CA couple who found $10 Mil in gold coins on their property and now have to pay about 47% of it in taxes?

    1. I read that story!!! I would LOVE to find a tin can full of gold coins. But 47%? OUCH!!! What I hate about taxes is that it feels like it all goes into a giant black hole at this point.

  11. I commend you for making a go at being self employed. I would be interested to see an article contrasting the pros and cons of self employment. I would gather that the pros would outweigh the cons as long as you can pay the bills by generating enough income. Best wishes as you grow your blog!

    1. There are a lot of pros! I like having the flexibility to do things when I want to. I also like that I don’t have to answer to anyone.

  12. Some of these reasons are why I keep a regular job, along with that I really enjoy my job. I just had a post today on taxes from extra income. I almost finished my taxes and I feel like they just asked for most of it back. It hurts to see all the work go away so quickly.

    1. Yep, totally. I don’t mind paying taxes for the most part but this year is especially painful for some reason.

  13. I can’t believe how much you have to pay for health insurance- it’s ridiculous! We’re fortunate to be getting it through my husband’s job, but it’s still really high. Like, I might have cried when I saw our monthly premiums.

    1. I have cried about healthcare costs so many times I can no longer keep track.

  14. I’m not cut out for self-employment really. I *like* my job – I could show up in my PJs if I wanted, and as long as I wasn’t meeting a client, no one would care. We’re working on moving more virtual, and downsizing our office space – 60% of the employees will work from home – I’m one of those that will continue to go into the office. I’m too distracted at home by things that need to get done…

  15. The loneliness is definitely one of the reasons why I took on a part time job at one of my largest affiliates in SF 2-3 days a weeks. It’s a lot of fun hanging out with folks again and going for happy hour and stuff.

    I wrote a post on Yakezie about leveraging our blogs for employment if interested.

    Another great thing about self employment is even though you pay self employment tax you can’t collect unemployment I don’t think. Whoo hoo!

    1. You can collect unemployment if you are set up as an LLC or corp, but you’d have to set up an account and pay unemployment tax to the government first. It would kind of be like setting up workman’s comp for yourself and filing a claim. Essentially employers pay unemployment, not the government, so you’d be paying yourself. Might as well just save it from the beginning.

  16. I feel ya on all of these holly, especially the health benefits and social aspect. I joined a local tech group to force me to get out of the office and network with other awesome nerds like myself. But as ya know the upside is huge!

    1. Yeah, that is so true. For all of my complaints, I really do have an awesome set-up.

  17. I think it would be cool to build your own business. I’ve only worked at home a couple times and it’s usually been because I’ve been sick. The cool thing is you can usually avoid the corporate politics.

  18. I’m really surprised to hear that so many self-employed people are encountering high healthcare costs. The private plan I bought when I quit my job was significantly cheaper and much better coverage than what I had through work, and I just switched to an Obamacare plan that was quite a bit cheaper than that. I guess it’s all a matter of what you were paying before, where you live, etc. but I hate to hear that yours is so expensive!

    Re: not having coworkers, I highly recommend getting into a mastermind group with other freelancers if you can. My group saves my sanity – it is SO helpful to have other people to Skype/email throughout the day, especially people who do the same kind of work and can serve as a sounding board.

    1. It seems like Obamacare costs vary widely due to the state you live in. I live in Indiana and it’s prohibitively expensive here, especially if you don’t qualify for a subsidy. Unfortunately, we don’t. I’m glad you found cheap insurance though! I sure wish I could!

  19. I feel ya Holly. We just sent our taxes in to our guy on Monday and really hoping we don’t get absolutely wonked this year. I think we made enough end of year deductions to save our hide, but it’s anyone’s guess.

    Even though I don’t consider myself a social person, I do miss that aspect of having a job in an office. Seeing as conversations can go on for only so long with our little ones, that doesn’t provide the same social outlet. 😉 I joined a Mastermind group and that has helped a bit and I need to join something local for entrepreneurs so I can actually get out of the house and talk about something other than My Little Pony, lol!

    1. We are getting a return, but that is only because we took a big loss on our rental properties and I paid in way too much to begin with.

  20. Oh my god, yes, the tax thing threw me for a serious loop the first year I was “self-employed.”
    I also miss work friends! My work friends now are cats. Terrible conversationalists.

    1. Same thing with my dog. He tries to sit on my arm all day!

  21. Ugh: those tax rates for the self-employed are awful. Do you find, on average, that the deductions available to business owners end up resulting in a fairly manageable effective tax rate, Holly?

    1. No, not at all. I don’t have enough deductions to justify the tax rate that we pay on my income. I don’t really have that many business expenses to be honest.

  22. Those self employment taxes are rough! Are they all federal taxes, or is there some State variability? Its so hard to be self-employed and then to have the government come and kick you in the pants is really bad. I hope that tax reform may come soon to reduce the burden.

  23. #FirstWorldProblems 😉

    But for real, taxes suck. I do taxes for a bunch of small businesses, and the SE tax is killer. That, subsidized health insurance and a 401k match is one reason that my “Salary” is actually MUCH better than the number shown.

    1. Jacob, all of my problems are first world problems =)

  24. I’ve never been self employed but I see the pros as flexibility since you’re the boss…that and you reap the benefits of the success in your business. But even when you are a freelancer…I guess there is a “boss”…your client.

  25. Those are some pretty expensive downsides! Despite no longer working together, hopefully you and Greg still manage to find great and more quality time together now that you live closer to his work? Hope that’s the case!

  26. Move to California! With the high state income taxes, self-employment is even worse. Anything I earn is taxed at just under 50%. That’s right, big brother takes half! Talk about taking away the incentive to be self-employed.

  27. Agree on everything but aside from having to pay estimated, and they are a completely pain in the butt to do, I actually benefit more tax wise I think then when I was employed. I’m not sure what the difference might be. I miss 401k plans too, and knowing for sure how much you would have each month. Does it help that you have a spouse that does have a steady paycheck?

  28. Wow! That’s a big increase in health insurance. I love all the benefits of self employment, particularly if you crush earnings to more than cover healthcare. I have a friend who transitioned to work-from-anywhere self-employed and is about to sign a lease with his family in Maui for a year. Pretty sweet.

  29. As much as I love my American neighbors, I am sooooo glad to be living in Canada re: the health care issues 🙂

    I also love being self-employed and when I do feel the need to be around people I simply walk across the street to a popular neighborhood cafe!

    Thankfully any support issues on the computer side of things I can fix myself and while I do pay more in provincial tax given my SE status, that extra money goes into my government pension fund…so I’ll be getting it back when I’m older.

    As you can imagine Holly, there’s no going back to the 9 to 5 for me…for the simple reason that I would make a lousy employee. I’d probably end up trying to influence the workers to leave their jobs and start a home or web based business 🙂

    Take care and have a great weekend! My best to all.


  30. Haha I was about to say I am your work friend, Holly!! But, I can see how you might miss chatting up people in the office. 🙂 Yeah self employment taxes are a biotch. I’m doing a better job of putting money aside every month this year for them instead of scurrying around. I have vowed to be more organized with it in 2014!! Still I haven’t missed going to my day job one time since I left. I loved it, but I love self employment way more.

  31. Ouch! My wife just started as an independent contractor this year… not looking forward to tax time. OTOH, she will have a more flexible schedule when we begin having children in the next couple years. Thanks for the honest post!

  32. Definitely tax will burden you when you are self employed. Also when you are owning your business you will be directly the boss/secretary/marketing analyst/ researcher/etc. and time is the big problem in doing such tasks.

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  34. I remember the first time I did my taxes when I had to claim blogging income from 1099’s. It’s nowhere near full time income, and I knew that as an independent contractor I’d owe big time, but I wasn’t prepared for the sellf-employment tax – so much for the government rewarding small business owners, huh???

  35. Yikes. I’m impressed you were able to make the transition, Holly, because Lord knows it takes some courage. I think self-employment is my eventual dream, as I would like to combine it with early retirement. But everything you listed is a big fear of mine… except for rolling out of bed and not having to worry about pressed clothes. That would make it easier to get rid of a bunch of junk in the closet.

  36. I think the work camaraderie would be what I would miss the most… it’s nice to be able to take a quick break during the day and go shoot the breeze over at someone’s desk!

  37. I’m really intrigued how different each state’s Affordable Health Care Act’s exchange functions. I have looked very closely at the Colorado exchange and the price for me to self-insure is around what I expected-though it is more than what I currently pay…right now I only pay $50 bucks a month! But, the freedom of movement is so huge for me that I am willing to pay more for insurance.

    As for work friends, I love my friends at work but I need more time for family and life-long friends. I think that the upsides still tilt things in favor of working from home. Also, I’ve gained 30 pounds at work. Enough said.

    1. Yeah, it’s not working well in our state at all. I’m not willing to pay $800 per month for health insurance with a 10K deductible at all. In fact, I may refuse when the time comes.

  38. Anyone else get hassled by family for being self employed? I make enough to pay my bills and do a little extra but yet my mother constantly tells me that I am not really working or dont really have a job every single day its so frustrating. For her if its not 9-5 then its not “real”

    1. I think that some people only think that “real” jobs are ones where you are working for someone else.

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