w2 payroll checks or 1099?

Question

i just started work in a company that pays both w2 checks and 1099. was wondering which is a better option for me as far as when i do my taxes. i am married with 2 children and have a house

Answer 1

the only difference is that with W2, your taxes gets taken out right away. i would prefer the 1099 cuz i would have more money in my hand each pay check to do something constructive with. but that also means i would have to find the taxes to pay back when it's time to file. usually IRS would give you a payment plan though if you can't pay it off at once.

Answer 2

It's not really optional, for either the business or the employee/contractor. You don't just get to choose - it depends on the parameters of your job whether the IRS defines you as an independent contractor (you'd get a 1099) or as an employee (you'd get a W-2). If for the same job and working conditions, the business is letting you choose, they are acting illegally.

See http://www.irs.gov/businesses/small/article/0,,id=99921,00.htmlee for more information.

From that website: A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result. Anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

Microsoft got in trouble a few years back for miscategorizing some employees as independent contractors.

Answer 3

The W-2 route is generally the more beneficial path. First, you need to understand the difference between an employee (who receives a W-2) and an independent contractor (who receives a 1099-MISC). An employee reports to work and performs tasks based on his employer's specifications. An employee is expected to work certain hours and report to a superior or manager. If you are injured at work as an employee, an employee will be covered by worker's compensation insurance. Also, full time employees are frequently eligible for additional benefits, such as health insurance, paid holidays, retirement benefits, etc.

As an independent contractor, a contractor sets his own schedule as to how and when a job will be completed, as long as the job gets done in the time frame specified by the original agreement. A contractor is responsible for providing his own liability insurance if there is an accident on the job, or a mistake made in the completion of the job. No payroll taxes are deducted from payment, meaning that the contractor will be responsible for paying his own income taxes (at the individual income rate) and payroll taxes (15.3% of net income). An independent contractor will need to file Schedule C (Business Profit/Loss) with Form 1040, and will be able to deduct any related business expenses. You won't be eligble for any employee benefits, like holiday pay, sick days, health insurance, etc.

Ultimately, it's up to you, but you'll basically be losing about 40%-50% of your gross pay to taxes as a self-employed independent contractor. So, the rate of "hourly pay" that you would earn as an independent contractor would have to be at least double of what you would earn as an employee. Also, don't forget about the cost of liability insurance. Depending on the industry, it can be pricey.

Personally, I wouldn't go the 1099 route if I were you, but you'll need to weigh all of the factors. It sounds to me like the employer is trying to save himself some money, but I don't know enough about your situation to make that call.

Answer 4

W2 tax reporting is usually used for payroll salary reporting.
1099 forms are typically used for non-payroll payments for services.

Check with your HR or Payroll departments about how they pay employees and what they recommend. I suspect that, if You are an FTE, you will be rewuired to fill out a W4 and have earnings reported on a W2 form.

Answer 5

There is one scenario in which it would be more beneficial to receive a 1099. If you incur a lot of unreimbursed expenses in performing your work, then you would be able to deduct those expenses "above the line" on your tax return if your received a 1099 as an independent contractor. If you have expenses as an employee (W-2), then you can only deduct them to the extent they exceed 2% of your income.

Answer 6

Plain and simply, always try to get a W2.