1099 workers — independent 1099 contractors

1099 workers are independent professionals under contract, not regular employees. “1099 worker” comes from a US tax form 1099. It’s used by the US Internal Revenue Service to report income other than wages, salaries, and tips. However, the form has become famous for reporting amounts paid to independent contractors. The IRS likes to call these payments “non-employee compensation”. Under US tax law, companies have to submit a Form 1099 for every contractor paid more than $600 that year. If you want to become a consultant  or you hire consultants, take the time to read through 1099 worker rules.

What is a 1099 worker?

A 1099 worker is what people call independent contractors in the US. 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, barter and more.

How can you determine 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 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.

Tax considerations and 1099 workers 

Some companies try to designate employees as 1099 workers so they can avoid taxes. Even though employees are responsible for paying their own taxes, it’s the employer that’s responsible for making the right determination of 1099 worker status.

If you’re thinking about becoming a consultant, make sure you know whether you’re a 1099 worker or a regular employee. You’ll want to set aside money for taxes and record your tax write-offs, so that you don’t get surprised by a year-end tax bill.  

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