If It Quacks Like a Duck…

Is your employee really a 1099 Contractor?

WHAT IS A 1099 CONTRACTOR?

A “1099 worker” is also referred to as an “independent contractor”. “Contractor” is a legal term for a person or firm that enters a contract to perform a service or provide a product in exchange for valuable consideration. Valuable consideration includes monetary pay, goods, services, and more. 1099 is the tax form that these workers use for the IRS.

IS THIS A 1099 WORKER?

The IRS has a guide that helps define 1099 workers by establishing criteria for employees, non-employees and independent contractors. Some of the points the IRS considers include:
• Behavioral control – the extent to which the hiring company controls and directs the worker.
• Instructions the business provides to the worker – the worker’s freedom in choosing when and where to work, what tools to use, where to purchase supplies, where to purchase related services, what work must be performed by a specified individual, whether subcontractors are permitted, and more.
• Training provided to the worker — independent contractors usually use their own methods to carry out work.
• Financial control – independent contractors usually have unreimbursed expenses, make a significant investment in the facilities they use to carry out work, invoice by flat fee/rate or some other method than a regular wage, and end up in a situation where they face a profit or loss.
• Relationship type — independent contractors have written contracts, no benefits, non-permanent relationships, non-core functions, and the freedom to work for other companies.

WHY DO I CARE?

If you use a 1099 employee the IRS assumes certain criteria are met. If the person working does not meet these criteria, you may be liable for back taxes, fines or even jail time.

Click here to read the IRS’s Publication 15-A regarding independent contractors.

 

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7 Responses to “If It Quacks Like a Duck…”

  1. Christy says:

    My employer has 1099 the employees after reading the guidelines is in the wrong. Who do I report this to?

  2. Cindy says:

    You can file an IRS form SS-8. It’s a request for the IRS to make a determination whether the work is really that of an independent contractor, or whether it is really an employee situation.

  3. YesBut says:

    Yes, you can go through the process at IRS. But be warned: It takes much time, many months, and, if it is decided that you are an employee, your schedule C goes out the window, and you will all of a sudden owe back taxes. Happened to me. All of a sudden I got a big tax bill – IRS demanded $500.00 more.

  4. Sherrie says:

    My employer of 9+ years recently acquired a new bookkeeper. She is threatening to ‘1099 me’ because the $100 they agreed to pay towards my health insurance “was not taxed.” She’s intending to claim that the $100/mo check that went directly to my insurance company, not to me, as additional earned income instead. This sounds awful fishy to me.

    • 10til2 says:

      Sherrie: This sounds like a very simple question for a tax attorney. We suggest you contact one in your area. Good luck to you.

  5. matt says:

    i noticed a 3 hour discrepency when i first started working for a catering company for each hour that was invoiced to clients. my employer told me that it was for tax related purposes and has always led me to beleive i was an employee. my pay was always done with cash. about a month ago i asked them for my pay stubs as i was behind in my taxes and wanted to bring them current and finally after asking many different types and pressing them they now say i am a independent contractor and it wasent their responsibility to keep track of that. i have never been issued a 1099 or a w-2. when they found out i contacted the irs to make a determination and received my UI claim. they locked me out of my residence, wont give me access to any of my possessions, took my 6 month file i had that contained all my evidence that could incriminate them. i have been homeless for 10 days now, i have made 5 attempts to get things they outright refused, and the 5 visit we got into an fight which my was the first to lay his hands on me, and because of that incident they pressed a restraining order on me that prohibits me from going around their place. i have caught them tampering with my mail and screen my mail for anything tax or court related. and advice what to do. what type of llawyer to seek perhaps strategies in regaining all the evidence that has disappeared.

    • 10 til 2 Central says:

      Matt: Sounds like there is a lot going on there; but we are unable to give any legal advice, as we are not attorneys. We urge you to contact one and we wish you the best of luck. There is one lesson to be learned here: Be sure to fill out the appropriate paperwork at the onset of any job, that way there is no grey area when it comes to employment/contractor status. If you do not receive a W2 at the start of a job, then you are not being treated like an employee regarding payroll. Keep us posted.

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