IRS 1099 Employee Rules

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Independent contractors may be paid by a business, but they aren’t classified as employees under Internal Revenue Service guidelines. The basic definition from the IRS is that you’re a contractor if the person or company paying you controls only the result of the work and the not the details of how the services will be performed. Instead of having your tax information delivered on a W-2, you’ll get a 1099-MISC.

Independent Contractor or Employee?

  • The IRS has a series of tests that determine whether you’re an independent contractor or employee. If you’re a business owner or contractor who provides services to others, your business relationship is that of an independent contractor. If the business that employs you has substantial control over your work and how you perform it, you’re an employee. If you have a written contract or employee-type benefits, like a pension plan or vacation days, you’re also considered an employee. Those who are unclear about their status can fill out Form SS-8. This asks the IRS to make the final decision.

Income Threshold

  • You should receive a 1099-MISC from anyone who paid you $600 or more during the year, or more than $10 in royalties. Whoever hired you sends the original 1099-MISC to the Internal Revenue Service to document your earnings and your tax burden. Even if you didn’t earn enough to require a 1099-MISC, you’re still responsible for paying taxes on all the income you earned. Document your earnings so you pay the correct amount.

Estimated Taxes

  • Generally, those who employ independent contractors don’t withhold taxes from paychecks. Because the IRS operates a pay-as-you-go tax system, you’re responsible for making sure you’re remitting the necessary funds. If you have a W-2 job in addition to your independent contractor work, you can increase your withholding there to make up the difference. If not, you’ll have to make quarterly estimated tax payments using Form 1040-ES. You’ll document those payments on your annual return.

If It Doesn't Arrive

  • You should receive your 1099-MISC in late January or the first few days of February. If you didn’t receive one but should have, contact the payer in early February to make sure it was sent to the correct address and to request a new copy. The IRS requests that you talk to the business first, but if you haven’t received it by mid-February, you can call the IRS. They’ll send out a letter to the person or company you worked for. In the meantime, you can file even without the 1099-MISC if you know how much you earned by recording the amount on your return.

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