Southwestern Advantage

The Hourly Intern & The Southwestern Advantage Sales Intern

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Guaranteed hourly pay is a great fit for many people. It frustrates others to feel that they outwork their co-workers only to be paid the same rate. They would rather be paid according to their effort. In this article, we compare how savings can work between an hourly college intern (W-2) versus what a first year Southwestern Advantage sales intern (1099-MISC) can save. Sometimes this money & tax stuff gets dense. We'll try to keep this readable.
$20 Bills

Let’s say you intern at a local firm. This firm pays you a very generous $20 per hour and you work 35 hours each week. Your gross pay will be $700 ($20 X 35) per week. You’re happy, your friends envy you, your parents are proud, life’s great! But then, Uncle Sam immediately shows up to take his share: Social Security tax, Medicare tax, and Income tax. (State income tax varies; a few lucky states don’t have this tax.)

Net Pay
Your net pay is what’s actually on your paycheck once taxes are taken out. If you make $700 one week, your taxes may look something like this, depending on the state:

 

Federal income tax
11 % of gross pay
$700 x .11
= $77.00
State income tax*
4 % of gross pay
$700 x .04
= $28.00
Social Security tax
6.2 % of gross pay
$700 x .062
= $43.40
Medicare tax
1.45 % of gross pay
$700 x .0145
= $10.15
Total taxes
$158.55
 
$700 – $158.55 = $541.45 on the paycheck
 
x12 week summer: $6,497.40
Expenses

Expenses

Oh right, it costs money to live life. Let’s be very conservative and assume you only spend a combined $100 per week on food, rent, transportation, and other expenses. After 12 weeks, you would have spent a minimum of $1200.


Your in-hand savings:  $5,297.40

Now, let’s look at a first year Southwestern Advantage sales intern (1099-MISC)

For context, in 2019, the #100 ranked First Year SWA Salesperson made a gross pre-tax profit of $8,827 which historically in our program is pretty standard for that ranking.
 
Not high, not low, very normal.
 
How might this sort out with 1099-MISC tax status? First, you are not taxed immediately on your gross-profit. You are able to deduct your business expenses.
 
Let’s take that $8,827 as our gross profit for this example. Let’s pretend that this individual was the spendy-type who did not keep their professional expenses low. Let’s say they went a little overboard and spent $2,500 during the summer (dude, too much).
 
The amount they’re taxed on is now at $6,327.

Next, you get to deduct what’s called a per-diem rate. Uncle Sam offers a variety of daily deductions for small business owners to help them better-afford food, travel, etc. Let’s use a common per-diem rate of $20/day. After 12 weeks, that’s $1,680.

Now, this doesn’t decrease our in-hand money (you already deducted your expenses), this decreases the amount that’s taxed, which brings us down further to $4,647.

Mileage
Every mile driven earns you 58¢ per mile in deductions. Let’s say you drove 700 miles each week of the summer, for 8,400 total miles. You pick: deduct about $750 in total gas expenses or deduct $4,647 in mileage (pick mileage).

Good news, there are even more deductions you can take! But instead, let’s stop there. Why? Because your deductions have brought you down to $0 that Uncle Sam will now tax you on.

What if you don’t make it down to $0? You can take advantage of the Qualified Business Income Deduction. QBID says that if you end up above 0 after you’ve exhausted all of your deductions, you can chop 20% more off that number before taxes kick in. Compare that to the $20/35 job with $158.55 taken out weekly for taxes.

Remember that $750 you spent on gas, though? That dropped your in-hand money from $6,327 to $5,577. So, in this hypothetical situation, you as an SWA sales intern finished the summer having made $8,827 total, but after expenses, ending up with $5,577 in-hand. The $20/35 job had $5,297.40 in-hand.


These numbers are kinda close. So…
Consider This
  • How likely is it to find a $20 per hour 35 hours per week summer job? Possible, sure; but probable? Is it more realistic to earn $15/hr and work fewer than 30 hours per week? 
$15 x 30 x 12 weeks = $5400 – taxes = $4,177
 
  • Say you land a $15/30 job, how likely is it that you’ll only spend $100 per week? Is it more realistic that you’ll spend ~$200/wk for 12 weeks?  
$4,177 – $2,400 = $1,777 saved
 
Consider what actually ends up in your pocket – the amount you save.
 
Hypothetical hourly intern: $1,777
 
Hypothetical SWA sales intern: $5,577
Lastly, cut $1,000 cash from the SWA sales intern’s savings, and give a $1,000 cash bonus to the hourly intern. The SWA salesperson has still saved 80% more. This student is in a far better position to afford school, life, and start a Roth IRA. This is still before prize/contest money and incentive trips that are available.
 
Southwestern Advantage interns understand that, in sales, working 3x as hard can save them 3x or more by the end of their summer. 
 
So, do you think out of all the other rookies, you could finish in the top 100?

The above content was made possible by Southwestern Tax Services – a full-service tax firm within the Southwestern Family of Companies.

Learn more about average student profitability on our Disclosure page.

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The Southwestern Advantage Sales Intern