By shifting your a W2 to a 1099, your employer wants to convert you from an employee to an independent contractor.
An independent contractor is considered a self-employed and is responsible for paying their own taxes. You can also claim some qualified expenses incurred in the production of income that you would normally not qualify to deduct as an employee.
Here are some resources that you may find useful:
Hi @FLAdvisor ,
While the article below may not apply to your exact situation, the advice on Schedule C reporting is relevant!
What he wants and what is legal can be very different things ... if you will be doing the exact same job then that would not be allowed. https://www.irs.gov/taxtopics/tc762
If you were to allow it you would have to pay the FICA taxes that he would pay, lose any health insurance or paid time off/vacation and any workman's compensation insurance. It would require a pay increase of at least 30% to make up for what you would lose which I doubt they will be willing to pay.
Employee vs Independent Contractor (W2 vs Form 1099-NEC)
One of the easiest identifiers of an employee is that they’re paid through their employer’s payroll system. The employer must also pay and report the employee’s taxes withheld. However, paying them through your payroll system and administering their taxes do not automatically make them your employee. The true test lies in whether there’s an “employment relationship” that meets legal standards.
Unlike employees, who are compensated through payroll, independent contractors are paid through the payer’s Accounts Payable (AP) system and are ultimately responsible for reporting their own income and paying their own taxes.
Similar to employees, there are legal standards for determining whether someone is an independent contractor. Because circumstances vary, it can be difficult to arrive at the right conclusion.
Generally, the biggest factor is how much control a company has over the worker.
With a W-2 worker (or employee), you have the right to control and direct their work activities. You can train them as you see fit, require that they work a certain number of hours per week, and tell them where to do the job.
With a 1099-NEC worker (or independent contractor), you can control or direct only the outcome of the work. Basically, you assign work responsibilities — including your expected deliverables — to the independent contractor and conduct limited tax reporting via Form 1099-NEC. However, you cannot control the independent contractor’s work activities or how they execute the assignment.
Legal standards for classifying employees and independent contractors:
Learning the different tests and deciphering which ones are applicable to your situation can be challenging. Moreover, due to the abundance of tests, a worker can potentially be an employee under one law and an independent contractor under another law. When the lines are blurred, it’s important to consult with an employment law expert.
I will review that in detail. Thank you for the help.
By shifting your a W2 to a 1099, your employer wants to convert you from an employee to an independent contractor.
An independent contractor is considered a self-employed and is responsible for paying their own taxes. You can also claim some qualified expenses incurred in the production of income that you would normally not qualify to deduct as an employee.
Here are some resources that you may find useful:
Thanks David. All good info. Appreciate the insight.