We process over $500 million of payroll a year on this basis and have hundreds of production companies as clients.
If anyone would like more information please feel free to contact me. czucker@capsuniversalpayroll.com – 212-263-3269 x 104.

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Yes, if the employee chooses to pay for them.

This’ll be long-winded, but I hope it answers the question.

Under the MBO system (and regular 1099 status), the artist is both employer and employee. This means the artist must pay employer taxes *in addition* to employee taxes. Unlike a 1099, though, taxes are withheld from each MBO paycheck, and the artist receives a W2 at the end of the year.

However, since the MBO employee is paying employer taxes, he is entitled to employer tax breaks.

These tax breaks are as follows:

- realtime deductible expenses
- purchasing Anthem health insurance with pretax dollars
- larger contributions to 401(k) retirement savings accounts

All the tax deductions that 1099 freelancers normally take at the end of the year can be done in realtime through the MBO system. If you enter $500 in expenses, for example, $500 of your earnings will pass tax-free through to you in your next paycheck. The remainder gets taxed in a lower tax bracket.

MBO’s guaranteed-issue group Anthem insurance plan could be worth it for single artists with preexisting conditions. Like other expenses, the MBO group plan is bought with pretax dollars. Again, the remaining taxable earnings gets taxed in a lower bracket. I am not taking advantage of this tax benefit at this time, however.

I *am* taking advantage of MBO’s 401(k). Normal 401(k) plans limit employees to a $16,500/year contribution, while an employer can contribute $49,000/year. Under MBO, where the artist is both employer and employee, they offer a $49,000 employer-level limit with a unique take on a 401(k) employer “match.”

The MBO user decides how much he will contribute as an employee, and the first 6% of this contribution is self-”matched” five times over by his own pretax earnings — up to 30%. This self-matched contribution escapes both employer and employee taxes, and goes into a traditional 401(k). The remaining income — again — gets taxed in a lower bracket.

Employee contributions can go into the same traditional 401(k) and defer employee taxes now, further lowering their tax brackets. Or, they can contribute post-tax income into a Roth 401(k) for tax-free withdrawals in retirement.

These MBO tax benefits are also portable if the artist moves from MBO studio to MBO studio. If the artist does not take advantage of any of these benefits, however, he would be better off working as a traditional W2 employee.

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A 1099 freelancer can grant himself similar benefits. A 1099 freelancer can take deductions at the end of the year, instead of realtime like MBO. A 1099 freelancer can save a portion of his 1099 income for retirement with a Vanguard SEP-IRA, instead of using the MBO 401(k).

For guaranteed-issue group health insurance, though, MBO could be the only game in town for freelance artists with preexisting conditions. This could change when the Visual Effects Society rolls out its guaranteed-issue group insurance plan later this year.

Even the VES, though, restricts membership to those with 5+ years’ experience in the industry. This screws younger artists with preexisting conditions unless they work at a studio that offers group benefits, or at an MBO studio that lets them purchase group benefits.

Like I said — long-winded, but I hope it answers the question.