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Know Your Rights
As a 1099 Employee
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Understanding the tax rights of a self-employed individual
When you work for yourself, there's a level of freedom that people working for companies don't have. You have control over the kind of work you do and the time you spend doing it. But of course, there's a price to pay for that freedom.
Was it Uncle Ben in the Spiderman movie who told Peter Parker that with great power comes great responsibility? When you're self-employed or a freelance worker, you've got to be your own hero because the freedom you have from working for someone else means you're also responsible for yourself in various ways.
Here's how to protect yourself.
Table of contents
Key takeaways...Read more
What is a 1099 employee?...Read more
Is there a difference between 1099 employees and 1099 independent contractors?...Read more
How to make sure your 1099 contract is safe?...Read more
What every good 1099 employment contract should have?...Read more
What does not qualify as a 1099 employee right?...Read more
1099 rules for employers...Read more
What exactly is a 1099 for contractors?...Read more
Key takeaways
- You should receive a copy of every 1099 form an employer sends to the IRS
- Your contract should stipulate key terms before you begin any work
- If you receive a 1099 from an employer, you should not receive a W-2
What is a 1099 employee?
Over the years, 1099 employees have been called many things: outworker, free agent, consultant, independent contractor, freelancer and self-employed person. Today, the IRS classifies anyone getting paid for work but not on a company's payroll as self-employed. Since anyone self-employed should receive 1099 tax forms when they do work, they can be called 1099 employees.
Suppose a property management company hires you to mow the lawn at a corporate campus, or a university hires you to teach a three-day seminar online, or you make deliveries for Postmates. In that case, you should receive a 1099 form showing what you were paid for that work.
When hiring a freelancer and paying them, the company has to fill out a 1099 form to report that payment and send it to the IRS — and send a copy to the employee. You'll need your 1099 forms when it comes times for taxes, especially when calculating self-employment taxes.
Is there a difference between 1099 employees and 1099 independent contractors?
In the eyes of the IRS, anyone who is under 1099 employment is considered a 1099 employee. But there's a reason we have these two different words.
Generally, an independent contractor is hired for a specific, one-off project, like the construction of a particular building or specific advertising campaign. At the same time, a freelancer normally receives regular payment for their work continuously. One thing they have in common is estimated taxes. Both are required to make quarterly tax payments.
How to make sure your 1099 contract is safe?
It's important to have a good contract between a freelancer and the company hiring them so both parties can ensure their obligations are fulfilled. There are several key tenets of a freelance contract that any 1099 worker will want to make sure are in place because it is a legally binding agreement.
The agreement should detail the working relationship between 1099 employees or 1099 independent contractors and their clients. It outlines the scope of the work or project, lists all the deliverables and shows what both parties agree the payment for the work should be.
A contract with the right information protects the parties on both sides of a 1099 employment agreement. For both 1099 employees and companies that employ them, their contracts can be especially important if a disagreement arises.
Some 1099 employee contacts are specific to different industries. Make sure you're familiar with the important considerations when you're negotiating a contract with an employer for the specific kind of work you do.
If you're a content creator, for example, you'll want to make sure you know who owns the rights to the content you create if you're getting paid by a company to create it.
The rights are really where the money is when it comes to content creation, and your contract is where you will legally claim them.
What every good 1099 employment contract should have?
- The contract should list all the deliverables the 1099 worker has agreed to provide
- Deadlines and delivery dates for all stages of a project, from the first deliverable to final product, should be listed if the contract is project-based
- It should be clear in the contract whether there are expenses that the 1099 worker might incur that would be reimbursable by the hiring company
- Before signing any project-based agreement, both parties need to agree on whether to include a clause that provides a kill fee or some other kind of compensation to the freelancer if the project is canceled or paused
- Some agreements have clauses about how long 1099 employees have to respond when contacted by the employer
- Last but certainly not least, every agreement must stipulate how and when payment is made to the freelancer
What does not qualify as a 1099 employee right?
There are some things written into the contracts that a self-employed person won't be able to ask for in a contract. Taxes are a big one. The companies paying you for your work as a self-employed person will not pay any taxes for you, as they might for their employees.
You also won't be able to ask them for overtime pay or minimum wage. Your pay is part of your negotiations before signing your contract. Other benefits like worker’s compensation and unemployment benefits can't be claimed as part of any contract you might have as a freelancer.
1099 rules for employers
All 1099 employees should be aware of this general rule: any company that has paid them $600 or more during the tax year is required by the IRS to report that payment. The income should be reported on a 1099 and sent to the IRS, with a copy sent to the freelancer or self-employed person who received the payment.
The 1099 for contractors is most often the 1099-NEC form, which businesses will file one of for each employee for the services they performed.
The NEC 1099 for contractors is also used to report other forms of payment to individuals, including prizes, awards and payments given for health insurance. This goes without saying, but 1099 employees should be aware that they should not receive a W-2 from their employer if they receive a 1099 form (and vice versa).
These are two very different tax statuses. They should also be aware that if they are given money for personal purposes, they are not required to pay tax and should not receive a 1099 form from the payer.
What exactly is a 1099 for contractors?
The 1099 is actually one of the simpler IRS tax forms. It lists only basic information, including the personal information of the self-employed person that has been paid and the amount the company reporting the payment has paid to the employee. The Recipient's TIN (Tax Identification Number) is a crucial piece of information. For most freelancers, the TIN is simply their Social Security number.
If a company does not have the TIN or other information, they need to fill out a 1099 form, they can fill out a W-9 form, which requests the information from the IRS directly.
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