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1099 Employees – An Overview

The workforce of today consists of a mix of full-time employees and 1099 workers, sometimes referred to as contract or ‘gig’ workers. Many workers supplement their full-time incomes with side jobs such as grocery delivery and rideshare, while others work solely as independent contractors as real estate agents, artists, and musicians.

Whether or not the jobs are small and supplemental or full-time careers, they all fall into the independent contractor/1099 category. This article will help answer the question ‘what is a 1099 employee’ and explain the differences between W2 and 1099 workers when it comes to onboarding new hires.

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What is a 1099 employee?

1099 employees are independent contractors who provide services for employers, companies, and sole proprietors. 1099 workers are self-employed, and they are often hired to complete one-time projects or serve companies on an as-needed basis.

Unlike W2 employees who complete W4 forms when starting new jobs to select tax withholding, 1099 employees are required to fill out W9 forms to provide identity information such as name, address, social security number, and Federal tax classification.

1099 employees do not select withholding, and they are provided with a 1099-NEC form at tax time that specifically states how much money they earned with each particular employer. In the past, these earnings were reported on 1099-MISC forms. As of 2020, independent contractor monies are reported on 1099-NEC (non-employee compensation) forms.

When taxes are filed, 1099 workers are required to report the full amount listed on the 1099-NEC form. In many cases, a 1099 employee may receive multiple 1099 forms if they worked for more than one employer during the tax year.

Distinguishing between 1099 workers and W2 employees

In order for business owners to avoid challenges at tax time, it’s essential for them to understand how to classify workers between 1099 and W2. 1099 independent contractors are generally hired for short-term projects or on an as-needed basis, while W2 employees are hired for ongoing work.

In many cases with 1099 workers, a pre-determined wage or rate amount is decided on prior to the contractor starting work. Another big difference in the independent contractor vs. W2 employee criteria is the fact that employers don’t pay into unemployment or offer health insurance plans for 1099 workers.

There are certain situations where an employer may treat a contractor as an employee. It is very important for employers to follow specific guidelines when dealing with contractors to avoid future misclassification issues with the IRS. The following explains some of the criteria to follow when distinguishing the two types of employees:

  • Control:An employer has complete control over how work is performed, where work is performed, and the hours in which the work is performed when overseeing a W2 employee. When using a contract/1099 employee, the contractor has control over these aspects and must only ensure a final result.
  • Supervision:W2 employees, whether full or part-time, are closely supervised in most cases. 1099 workers generally supervise themselves, and all work is reviewed when the contractor completes the project.
  • Pay:W2 employees receive weekly, monthly, or bi-weekly paychecks on a specific pre-determined day (payday). 1099 workers are paid per assignment, and in some cases may receive partial payments or deposits up front, depending on the specifics of the job.
  • Termination:W2 employees can be terminated, and employees may resign or quit in most cases without cause or notice. 1099 contract workers and employers must both agree to end the working relationship based on the terms of the contractor’s signed written agreement.

1099/$600 rule

One important aspect to hiring independent contractors is the $600 rule. The IRS requires employers who hire 1099 workers to file 1099-NEC forms to report payments of $600 or more made to non-employees.

Types of 1099 gigs and jobs

Today’s multi-faceted working world has many employers and employees wondering, ‘what is a 1099 job?’ As mentioned above, 1099 jobs can range from single, one-time projects to full-time careers. Here are some common 1099 jobs and gigs:

  • Rideshare drivers:Rideshare drivers work as independent contractors for various transportation companies. They use their own vehicles and are provided with either 1099-NEC or 1099-K forms(if payments are processed through a 3rd party) at the end of the tax year.
  • Freelance web designers: Freelance web designers build websites on a per-job basis. They are paid per project, and rates are typically determined and agreed upon prior to starting work. Freelance web designers are provided with 1099-NEC forms at tax time, and they are responsible for their own taxes. 

Photographers:Freelance photographers are hired per project. In many cases, they require partial deposits or down payments to reserve time slots and purchase props, costumes, or special equipment. Freelance photographers are responsible for their own taxes and expenses.

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