If I Get a 1099 Form Do I Mark Self-Employment?
A 1099 is a tax form used to report income you receive from a company you've contracted with. The company issuing the 1099 form must report all compensation they give to you. This compensation is listed on the 1099-MISC as "nonemployee compensation." When you get a 1099 form, you'll be marking that you're self-employed on your tax return.
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Significance
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As a 1099 employee, you're not really working for the company. The term "employee" might be used by the company you're contracting with while you are working with them. However, in the eyes of the IRS, you are an independent contractor. You do not work for the company, and the company does not withhold taxes from your income. Therefore, you must file and pay taxes on your own.
Benefit
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Because you are not an employee, you are free to leave the company or work for several companies simultaneously. Your work is by contract only. You do not pay union dues, if the company has a union. This may provide you with additional money each week in your paycheck that you otherwise wouldn't have. You also get to deduct expenses associated with working for the company on your tax return. If the company does not reimburse you for these expenses, this reduces your gross income for the year.
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Disadvantage
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You lose out on some benefits as an independent contractor. You won't get retirement benefits from the company. You're not eligible for health insurance through the company, either. You must fund your own retirement, which may consist of just an IRA, but the company won't match any contributions as they might with a 401(k) plan. Finally, you have to keep track of you income, even when the employer issues a 1099. This is because you have to make quarterly income tax payments to the IRS and you must know how much you earn during the year.
Consideration
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When you file your tax return, be sure to fill out Schedule C. This schedule records profit and loss from a business. The only way to avoid doing this each year is to work directly for the company. You may or may not be able to control this, since the employer may simply refuse to offer you a permanent position with the company. Once the company hires you, it assumes additional costs, including providing retirement benefits, unemployment insurance payments, workers' compensation payments and health insurance payments.
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