For a temporary work contract, is it better to work under a 1099 contract or a Corp. contract?

Question

Benefits are not a concern as I have medical under my wife's plan and won't have enough time in for 401k or vacation time.

This is a 6 month contract to hire position in which I would work for a contracting company until the end of six months at which time I will either be hired by the company or the contract will not be renewed.

I am not sure whether it matters whether I do Corp or 1099, but the contracting company is asking me which way I want to go.

Ok, that makes since. What is happening here is that a head hunter is placing me in this position, but the agreement with the company and the head hunter is that this is a six month contract to hire position. I will be working for the company, but they are paying the head hunter/contracting company for my services for six months. If I work out, they hire me directly if not, the contract is not renewed.

The Corp contract I would have would be with the HeadHunter/Contracting Co., not the company I am doing the work for. It sounds to me, that a Corp. contract would be the least hassle from my point of view.

Answer 1

If the headhunter company is not withholding taxes on your behalf, then they are going to issue you a 1099 at the end of the year. You will be reporting this as "self-employment" income on your tax return. You are responsible for paying the 15.3% self employment tax, in addition to the federal and state tax on your income. Keep in mind if you do not have enough tax paid in on time, you will be hit with penalties. You may need to pay estimated tax in on a quarterly basis.

Answer 2

It is the nature of the work and how you do it that controls. It doesn't matter if you work for one day or a year, the treatment is the same. Yours is the fourth time today (and the second in five minutes) that I have posted my canned explanation to clueless independent contractors.

Some employers try to get around paying employment taxes (social security and unemployment) and other employee benefits like workers compensation insurance by improperly classifying employees as independent contractors. If you are required to show up for work--personally--at a particular time, punch the clock, use the employers equipment and are paid an hourly rate, you are an employee. If you didn't understand the difference when you posed your question, I would be even more convinced that you are an employee. What is your preference, Slotted or Phillips? Complete an IRS Form SS-8 to get an official ruling on your status. This will help you get unemployment if you get fired.

Answer 3

Since you're an employee of the contracting company, you do not get to choose. You're an employee and must be paid as such. (The fact that the company has a contract with the outfit where you'll be performing services is irrelevant to how YOU are paid.) You'd pay more tax if you were working as an independent contractor yourself so it's in your best interest to be paid as an employee anyway. You'd also not be covered under workers comp if you were injured on the job as an IC so that's another consideration. (And some medical plans won't cover job-related injuries so your wife's health insurance might not cover you there.)

Answer 4

Check with a tax person. It would make a difference on if and how a corp contract it written. With the 1099, you will be granted to full dollar amount, but no FIT or FICA/Medicare will be taken out. You would have to adjust you withholding or your wife's withholding to compensate for the FIT not taken. Or set aside some of that payment for the taxes that will be due on that amount. You would have to file with the SS dept too.

Answer 5

Wartz is correct, but I just had a battle with our state gov over this.

The employees who were temp, on 1099's were forced to go back and pay soc sec, and medical taxes. Of course I had to pay the business portion.

My rule. Only people who get 1099's are my lawyer and CPA. Oh that's by IRS rule as well.