Is it in my best interest to be paid 1099 or W-2 when it comes to reducing federal taxes?

Question

I may be able to be paid 1099 instead of W-2. How much will this hurt me come Social Security time? Would this be better for my tax bill?

Answer 1

No, it won't be easier for you for your tax bill. For a W-2 you have federal withholding, social security, medicare, and state withholding taken out of paycheck. The social security tax is 6.2% of gross paycheck and medicare tax is 1.45% of gross paycheck. Your employer pays a matching amount. If you get a 1099 you are responsible for paying federal withholding, social security, medicare, and state withholding. But you will be paying both the employee and employer portion of the social security and medicare taxes, since you are working for yourself.

Answer 2

All else being equal, you'll pay HIGHER taxes if you are self-employed since you will pay double the Social Security and Medicare taxes that an employee does.

It won't make any difference when it comes to collect Social Security however as SS payments are based upon your lifetime income, not who paid the taxes.

Some will argue that you can deduct business expenses when self-employed and that is true but for most of the "1099 jobs" I've seen there is little that you'd be able to deduct as the employers have mis-classified the position as independent contract to try to avoid paying payroll taxes, worker's comp insurance, benefits, etc.

If a prospective "employer" is offering you a choice, they are CLEARLY breaking the law. The determination of employee vs independent contractor isn't a "pick and choose" issue but is based solely upon the facts at hand.

Keep in mind that if you are self-employed you must make quarterly estimated tax payments to the IRS and your state tax authorities. If you don't, you will be facing a large tax bill plus penalties and interest for underpayment of taxes.

Answer 3

For most people the answer to this question is short and to the point: If you are unsure then don't trust yourself because you undoubtedly will find yourself with a big bill that you can't pay come next April if you choose the 1099 route and will be taken care of with a W-2. The fact you are being offered a choice is a red flag.

Answer 4

No, the owner of the business is not allowed to determine that - there are specific IRS rules for the determination, and that has to do with their duties and responsibilities, and their freedom to do the job when, where, and in the manner they see fit to do it. If you set the hours, place of work, or how they do their job, not just what the end results are, then they are employees and would have taxes withheld and get W-2's. In any case, if they all have the same job, then they're either ALL employees or ALL independent contractors. If which they are still seems gray, you can ask the IRS for a determination.

Answer 5

This depends upon several factors. To do a quick and easy check try the turbo tax CD program using both methods to see how much you will save on taxes. As for your retirement and social security that is normally only affected with the last years of your working career or with very large jumps and declines in pay.

Answer 6

WELL IF YOU GET UR WAGES REPORTED IN THE FORM OF A 1099 MISC YOUR MOST LIKELY NOT ONLY LIABLE .FOR FEDERAL INCOME TAX BUT FOR SOCIAL SECURITY AND MEDICARE AS WELL UNLESS YOUR EMPLOYER CHOSE TO WITHHELD FEDERAL INCOME TAX AND STATE. NOW IF YOU HAVE A EXPENSES AND YOUR INCOME IS STATED ON BOXES 7,9,AND 14 OF YOUR 1099 MISC YOU COULD FILL OUT A SCHEDULE C AND DEDUCT CERTAIN BUSINESS EXPENSES, ON THE OTHER HAND WHEN YOU GET A W2 YOUR EMPLOYER BY LAW WITHHOLDS YOUR FAIR SHARE IN FED INCOME TAX BUT ALSO SOCIAL SECURITY AND MEDICARE AS WELL WHEN YOU GET YOUR PAY CHECK. SO THEREFORE WHEN TAX SEASON COMES YOUR ONLY LIABLE FOR WHAT THEY DID NOT WITHHELD OR THE CASE MIGHT BE THAT THEY OVER TOOK FROM YOU AND THATS HOW YOU END UP WITH A REFUND ONE THINGS FOR SURE YOU WILL ALWAYS HAVE TO PAY TAXES. SO EITHER WAY YOUR STILL PAYING THE SAME TAXES EITHER NOW OR LATER THERE ARE GOOD WAYS TO DEDUCT TAXES ON INCOME REPORTED ON1099 AND THERE ARE ALSO GOOD WAYS TO DEDUCT ON W2 REPORTED INCOME FOR MORE INFO EMAIL ME @ [e-mail]