The Important Differences Between a 1099 vs. W-2
- 1099s and W-2s are two separate tax forms for two different types of workers. If you’re an independent contractor, you get a 1099 … As a W-2 employee, payroll taxes are automatically deducted from your paycheck, and then paid to the government through your employer
Determining which to use
A W-2 employee:
- Work hours are set by the company and usually consist of a fixed schedule.
- The work process is defined by the company and training is provided to workers by the company.
- The workload is assigned by a supervisor and workers are required to meet set criteria for performance.
- Equipment, tools, and supplies required to perform the tasks are provided by the company.
- Workers have a single employer.
A 1099 contractor:
- Work schedule is determined by the worker.
- Assignments are accepted on a case-by-case basis and the worker can reject or opt out of assignments.
- Workers complete assignments using their own methods and work process.
- Tools, equipment, and supplies are provided by the worker although the company may provide some training.
- Workers may provide their services to other clients.
Understand Workers benefits
- 1099- you have no benefits; employers can pay contractors more because they don’t pay benefits for the employee. This includes health insurance and paid time off and vacations.
- W-2 – Full health, 401(k), and other employee benefits
Legal (Worker Misclassification)
- If you sent a 1099 instead of a W2 because of misclassification, you can face a $100 fine per worker.
- You can be charged your share of FICA that you should have paid, plus 40% of the FICA your worker should have paid.
- You can be charged 1.5% plus interest of worker wages that you failed to withhold federal income taxes for.
- There may be similar consequences from state agencies for failure to pay or withhold unemployment taxes.
- All of these can be backdated for up to three years per worker.
- Workers that were misclassified can come back after you for unpaid overtime and other benefits.
- Misclassification lawsuits (such as the epic Microsoft fiasco) can result in additional damages.
Companies that are most affected by this
- Construction and staffing industries are rife with misclassification, but it’s a common tactic in play in all employment sectors
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