If It Quacks Like a Duck…
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.
Other 10 til 2 blog posts you may be interested in:
- 1099 vs Employee: You Need to Know the Difference
- 1099 Fun Fact
- 1099 Misclassification Costs Employer Big Time
- New Law Cracking Down on Independent Contractor Misclassification
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