what exactly does it mean to work as a 1099 contractor vs W2?
Steven J. Tichy.
it means to be 1099, I know w2 means I am employed by someone else and
they withhold taxes. Do I have to be incorporated to be a 1099 worker, I
thought I only had to invoice the company. Please clear this up for me.
Thanks.
Art Kamlet
: I would like to do some computer contract work, but am confused by what
: they withhold taxes. Do I have to be incorporated to be a 1099 worker, I
: thought I only had to invoice the company. Please clear this up for me.
You're right; if you're an employee your employer:
- will give you a W-2 form at year end
- will withhold income taxes each pay period and send them
to the gov't (based on the W-4 form you fill out)
- will withhold social security and medicare taxes from
your pay, and send them to the gov't
- will pay an identical amount of social security and medicare
taxes out of their own pocket
- will pay for whatever state-required unemployment insurance
and other state payments for you
- (Optional) --- might offer you benefits ranging from vacation,
medical, pension, savings plan, and others.
If you are not an employee, then you are probably an independent
contractor. The employer generally does not pay the above taxes and
fees. So there are employers who are motivated to classify someone
as a contractor not an employee. The IRS does not get taxes
withheld, and some contractors skip out on their taxes, and the IRS
has been cracking down on employees who are incorrectly classified
as contractors. (And crack down on the employers.)
The IRS has a set of guidelines to determine of someone is an
employee or an independent contractor. Some guidelines which
categorize someone as an independent contractor include:
- works for a number of different organizations
- owns and uses his own tools, not the employer's
- sets his own working hours and conditions
If you are a contractor the employer will issue a 1099-Misc, and you
will need to file a Schedule C, itemizing your 1099-Misc (and other
business) income, and also your expenses. You are responsible for
paying all of your social security and medicare taxes, and will fill
out a form SEP as a self-employed person. You can often purchase
your own medical insurance, and set up your own tax sheltered
savings plan.
Some people prefer to be classified as a contractor, and often
negotiate higher salaries from the company since the company's
expenses are less. But see the IRS guidelines, since violating
them could lead to trouble down the road.
By the way, if you incorporate, and the company contracts with the
corporation instead of with you, there is no 1099-Misc from the
company. (Unless you are a medical services provider :^). (Now
decide if you are an employee of your corporation.)
DISCLAIMER: These are my personal opinions and not advice of any sort.
--
Art Kamlet Columbus, Ohio kam...@infinet.com
Barry Rubin
>
>I would like to do some computer contract work, but am confused by what
>it means to be 1099, I know w2 means I am employed by someone else and
>they withhold taxes.
Correct.
>Do I have to be incorporated to be a 1099 worker, I
>thought I only had to invoice the company.
It is NOT necessary to be incorporated, although many mistakenly believe
it is necessary.
Basic difference: W-2 worker gets benefits and employer pays 1/2 SS tax,
and unemployment tax, difficult to deduct work-related expenses. 1099
worker pays all of SS (actually, self-employment tax), easier to deduct
work-realted expenses.
>Please clear this up for me.
>Thanks.
Go to my home page below, and then the link to Univ.of Fl. That site has
much, much more information on how the 2 are distinguished. Look for the
20 questions.
--
b...@netpoint.net
http://www.netpoint.net/~br
d006...@dcfreenet.seflin.lib.fl.us
RODNEY W STRICKLAND
>
>I would like to do some computer contract work, but am confused by
what
>it means to be 1099, I know w2 means I am employed by someone else and
>they withhold taxes. Do I have to be incorporated to be a 1099 worker,
I
>thought I only had to invoice the company. Please clear this up for
me.
>Thanks.
>Being an independent contractor means that you pay your own way: ie
SSI, Medicare,Fed Taxes, State Taxes, Local Taxes. But it also means
that you can take some deducations that you could not take as an
employee.
Mike Wellman
I would like to do some computer contract work, but am confused
by what it means to be 1099, I know w2 means I am employed by
someone else and they withhold taxes. Do I have to be incorporated
to be a 1099 worker, I thought I only had to invoice the company.
Please clear this up for me.
>>>>> End Quote
You do not have to be incorporated. You will need to report your
income and expenses on a Schedule C and complete the Schedule SE
for your self-employment tax. Make sure you make estimated tax
payments quarterly in lieu of withholding. If you get behind on
your quarterly payments - you may find yourself in a big mess next
April. Being a 1099 contractor simply means that you theoretically
control your own schedule, use your own equipment and direct your
own activities. I recommend you get IRS Pubs. 533, 583 and 587 if
you will be working at home.
--
Mike Wellman, CPA - Problems with liens, levies, seizures, audits,
appeals, past due returns, interested in learning about offers in
compromise see: http://ourworld.compuserve.com/homepages/wellman/
Includes an index to 63 common IRS Publications.
Gene R
>In <4golsl$7...@nn.fast.net> sti...@fast.net (Steven J. Tichy.) writes:
>>
>>I would like to do some computer contract work, but am confused by
>what
>>it means to be 1099, I know w2 means I am employed by someone else and
>>they withhold taxes. Do I have to be incorporated to be a 1099 worker,
>I
>>thought I only had to invoice the company. Please clear this up for
>me.
>>Thanks.
>>Being an independent contractor means that you pay your own way: ie
>SSI, Medicare,Fed Taxes, State Taxes, Local Taxes. But it also means
>that you can take some deducations that you could not take as an
>employee.
If you are working for someone and are under their control - their
materials, arrive and leave when they say, must do what they say,
etc., then you should likely be treated as an employee instead of an
independent contractor. I would suggest you talk to a professional if
this seems to be the case.
Dave Orleans
out. You will need to pay soc. for an employee and employer, all Fed.
and State to the appropriate governments. Do NOT think that a company
will be fast to pay you flat pay especially if they are big. Many
companies get penalized BIG time if they cannot prove that the 1099
person meets certain guidelines. Let the employer deduct the taxes and
save yourself headaches. Do not think that you will get away with
more $ and report less. A 1099 is an audit flag with the IRS.