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Lil G | 1099 or W 2? My boss is letting me decide: I am a single mother, head of household, low income. ? |
Help! I need to know if I should file as 1099 or W 2 for my new job. My boss is letting me decide. I make $16 per hour/ 6 hours a day, have 2 children, and am head of household. Usually I have always filed as W 2, and gotten back from the IRS between $3,500 and $4,900 at the end of the year. Taxes that were taken from my weekly paycheck were minimal- maybe $35 per check? And I got it back anyway.... Now I have the option of 1099, but I fear that if I do this, despite the allure of not getting taxed 'per check', I am afraid I will lose the $3,500 back (Earned Income Credit, Child tax credit, etc)., plus have to owe several hundred dollars, which I for sure won't have saved! What should I do? The only reason I had thought that perhaps I should d the 1099 is that I do use my car for company errands... so I could deduct the gas, which I cannot do with W 2. Any suggestions? |
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Charles G
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If you are working set hours, at his place of business, with his equipment, under his direction, you are a W-2 employee, no matter what you or your boss decide.
And that is good for you; you will pay more tax on 1099 because you pay all of the self-employment, not just half (FICA).
Either way would qualify you for EIC.
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ninasgramma
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As pointed out, you and your boss don't choose your employee status, the facts and circumstances of your job determine that.
Suppose you make about $24,000 in W-2 wages. You owe zero income tax because of the child tax credits. You can claim "exempt" on your W-4. You are paying payroll taxes (SS/Medicare) of about $1,800, taken out of your paycheck. Your refund with two children is about $4,500.
If your job paid you $24,000 on a 1099, let's assume you had $4,000 in vehicle expenses. You will pay about $3,000 in payroll taxes, but get the EIC and Child Tax Credit. Your refund would be about $4,200.
In neither case would you have to pay any taxes, either through withholding or estimated tax. In the example above, your refund is about the same.
However, an employee paid on a W-2 is also covered under workers compensation and unemployment insurance. Plus, the higher income subject to Social Security and Medicare as an employee gives you more credits for these benefits for when you retire or become disabled.
You have zero job stability as a 1099 worker. However, in some states, you do have more job stability as an employee (there are restrictions on how you can be fired).
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bostonianinmo
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You and your boss do NOT get to choose. The law determines if you are an employee or an independent contractor.
Generally if you work at his place of business, on a schedule that he sets, using his tools and methods, and following his direction on how the work is done then you are an employee by definition.
On the other hand, if you decide when the work will be done and where it will be done and provide your own tools and equipment to perform the work and decide the methods that will be used then you are an independent contractor.
Here are a couple of examples:
1. You work in an office. You handle the payroll and bookkeeping. You answer the phones and direct calls to other staff as needed. You do some light cleaning and any other tasks as directed by the business owner. You work a regular 8 to 5 schedule. You are an employee.
2. You are an IT consultant. You have a number of customers that you provide consulting services for. You negotiate with your customers when the work will be done but make the final call on scheduling. You provide regularly scheduled service for some of your customers such as software updates and system repairs. You also take on one-off engagements from whomever needs your expertise. You present the business with an invoice for the jobs that you do, and collect sales taxes from the business. You provide all of your own tools and equipment to accomplish the tasks that you perform for your customers. You are an independent contractor.
A few other things to keep in mind. Although as an IC you may be able to deduct certain business expenses, you generally need to pull double the hourly rate as an IC compared to an employee to be in the same financial position as an employee. You pay all of your own taxes, including both halves of the FICA and Medicare taxes. You are not covered by unemployment compensation or worker's compensation so you must purchase private third party insurance out of your own pocket if you want that coverage. You receive no benefits such as employer paid healthcare coverage, paid time off, holiday pay, etc. Therefore unless your boss is offering you $32 or more per hour as an IC vs $16 as an employee, the no-brainer choice is employee and you can skip the legalities entirely. |
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Wayne Z
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The law decides what you are. You and your employer don't.
If you are working a set schedule, under their supervision and using their supplies and equipment, you are an EMPLOYEE. Period!! You should be given a W4 and I9 when you start your employment and issued a W2 at the end of the year.
If you come and go as you please, with limited supervision and use your own supplies and equipment, you are an Independent Contractor. You would be given a W9 when you start work and would be issued a 1099misc and the end of the year.
My guess is that you are an employee. By the letter of the law, there is no choice to be made. |
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Jss
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Read about W2 vs 1099-Misc: http://taxipay.blogspot.com/2008/03/w2-or-1099-employee-or-independent.html |
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HELP US
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Take a W-2. In this case you do not to be worry about SS tax and yes you will lose EIC, since 1099 form considered by the law as business income. |
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HyperDog
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Considering how busy you'll likely be, and how much accounting 1099 reporting will involve, it would be easier to go the conventional W2 route.
A financial planner would likely advise you to increase your deductions and put the money in your bank account rather than let the government hold it, but if you have trouble saving, then you probably should leave your deductions at 1 or 0. |
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chatsplas
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Take the W-2. Much easier for you, you don't have to think, to do anything. Need records, have to file quarterly estimated tax returns, have more complicated tax return.
Commuting is NEVER deductible, but going places from your workplace is. Nonreimbursed business employee expense if you are W-2 and itemize, or deductible on schedule C if you're 1099. Need log with details of trip, business purpose, miles, etc. |
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