Thank you for contacting TurboTax Live! on our Live! Ask the Experts Event!!!
We see that you had a question - about consulting and in your planning for retirement. This is great news that you are already planning for retirement, and congratulations on reaching this important milestone and life stage!
We thank you for your question! And - we thank you for the opportunity to respond to your question!!!
We see that - in your planning for retirement - that you have turned down consulting opportunities. You also mentioned that it looks like you will consult with just one company this year.
You also said that in previous years - that you provided consulting services to multiple companies.
You asked about status - and whether being classified as an employee or contractor has a tax effect on your tax return filings for the consulting services that you perform.
You mentioned that you discussed status with the company - and the company suggested that they will send you a 1099 for the 2021 tax year (and not a W-2).
You also said that the same was true for last year (2021) when you started performing consulting services for that company.
You also said that this consulting work for the company - was the only work you will have performed this year, and through the end of 2021. You further mentioned that as you are reaching full retirement - that you will not have compensation during 2022 (for either W-2 work or 1099 consulting services).
In terms of your question - if there is anything that you need to do at this point in time? . . . the answer is possibly, but probably not.
As the company plans to send you a 1099 for the 2020 tax year - it appears that the answer to your question is "yes, you will just simply fill and report your 1099 income and business-related expenses on Schedule C" - just as you have done in previous tax years.
However, whether you truly are an employee or an independent contractor - and the appropriate and proper classification of your work and consulting services - depends on how you are paid, and the type of year-end form you receive from the company that paid you.
If you're an employee:
- You received a W-2 from your employer (usually in January or early February - as they are due to the IRS from the company in that time period).
- Your employer took Social Security and Medicare taxes (FICA) out of your paycheck each payday, and for each pay period.
If you’re an independent contractor:
- You received a 1099-NEC or 1099-MISC for the tax year.
- The payments you received were for the full amount you earned, nothing was deducted (or otherwise withheld) for FICA.
If you're an independent contractor you're considered "self-employed" - and you are responsible for reporting your earnings (and business-related expenses incurred to generate those earnings).
As an independent contractor - you are responsible for paying your taxes directly to the IRS.
As an independent contractor - you should report your net income or losses either on a Schedule C or as other income on Form 1040. Since it appears you may have business-related expenses that were incurred in earning the consulting income, you will most likely use the Schedule C - and answer the interview questions in TurboTax Live! regarding self-employment income and expenses.
For purposes of providing you with the best assistance - we also wanted to take a moment to explain to you why it makes a difference - if you are classified as an employee (such as an on-demand worker) or as an independent contractor.
Determining classification of on-demand workers
For tax purposes, defining an "on-demand worker" as an employee or an independent contractor depends on a variety of factors.
Usually, the main determining factor is the level of "control" the employing company enforces — or has the right to enforce — over its workers.
Specifically, the IRS has a list of factors - and the IRS also looks at whether the company:
- Offers benefits
- Sets prices
- Provides supplies
- Reimburses expenses
Sometimes companies decide to treat their "on-demand workers" as employees for tax purposes, although many companies generally do not.
In many cases, the businesses that decide to treat "on-demand workers" as employees are those with lower worker-to-customer ratios. So - you have to consider if the company where you perform consulting services has sufficient control over your workflow - that you should be re-classified as an employee, which would have required the company to withhold Social Security and Medicare taxes (FICA) - as well as provide you with a W-2 for the year - as opposed to the company's current choice to treat you as an independent contractor and issue to you a Form 1099.
When you square this away with your company - we can help you at TurboTax Live! by asking you simple questions in our TurboTax Live! interview - about your self employment income. Once you answer the questions, we will go to work in filling out the right tax forms for you.
And - we are only a phone call or Chat away - if you need assistance from one of our Live! Tax Experts at TurboTax Live!
Thanks again for your question, and the opportunity to respond to it, and we truly hope you enjoy your upcoming retirement! Cheers!!!
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