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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
If you have questions about this, please email help@theknot.com.
Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Job and Taxes
My friend was offered a job as 1099 employee. She doesn't understand what that means. I honestly can't figure out the info either. The IRS website is as clear as mud.
She said the position is employer--employee, but since it is a small office they would prefer her to be a 1099 for tax reasons.
What does this mean? What does she need to do? Does she need to decline the offer?
Thanks so much!
Re: Job and Taxes
It means that she would be an independent contractor and that she would be responsible for paying her own taxes. In her shoes, I would contract an accountant to discuss how that might work and withholding. Normally, an employer pays a 1099 employee a higher rate to compensate for being independent.
Hmm...she said their pay was on the lower end for her job.
BTW -- being a contractor has a legal definition in every state. A lot of companies try to do the whole 1099 thing for several reasons (one of which is that there are no benefits for contractors) but it isn't always legal.
For example consider NJ's laws.
New Jersey uses the ?ABC? test for unemployment responsibility and hour and wage requirements. NJSA 43:21-19. Under this test it is up to you, as the employer, to prove that the relationship is that of an independent contract and not that of an employee. Specifically the state would look at the following:
A. Is the person now and continues to be free from the control and direction over the performance of the job? This condition not only has to be in a contract but must be what occurs in fact. If the actual practice is different than what is set forth in the contract, the contract will have little weight.
B. Are the services either outside the usual course of the business or performed outside your physical location? Does the independent contractor work in your office space or do they work from their own location?
C. Is the individual customarily engaged in an independent established profession or business? Are you the independent contractor?s only job or does the indepenent contractor perform work for several other companies?
I knew this was going to get complicated. I am just going to ask her to talk to an accountant. We live in separate states.
Thanks.
Ditto this. I am an accountant, but by no means an expert. What the other posters have written is correct - there are specific definitions that govern what situations constitute employee v. independent contractor. If she is working at their place of business during hours they determine and they are telling her what she should be working on, that would in most states be considered an employer/employee relationship.
Some jobs lend themselves to being contractor positions, even if you work for a specific company. For example, when my DH was injured last year we had therapists coming to the house to work with him. They worked for a specific agency, but they set their schedules and client appointments based on when they wanted to work; when there was a new patient they had the option of saying they did not want to take that patient on; they do all of their work out in the field so there was no office they were reporting to every day. Their paperwork was completed in their evening or other off hours in their home or wherever they felt like doing it.
By setting her up as a contractor, they are not liable for employer taxes (social security and unemployment) or for withholding taxes on her behalf, or for providing benefits to her. For that reason, her hourly rate should be at least 20% - 30% higher than if she were an employee. She should also be filing estimated tax returns on a quarterly basis. Otherwise she can get hit with a penalty at the end of the year.
She should contact an accountant or the DOL in her state to find out the specific guidelines and then talk to her employer if it seems her arrangement is not valid.
My DH was a 1099 contractor for several years (just switched over as he is now an owner-partner in a consulting firm) as an IT Consultant.
With consulting, you should generally be paid a higher rate than you would as an employee to account for the increased tax burden on the worker (self-employment taxes, the half of your SS and Medicare taxes that your employer is normally required to pay for you, are around 13%...quite the tax burden) and the lack of benefits (no paid vacation, no insurance benefits, no retirement benefits, no elgibility for unemployment benefits). Not only do you have to pay for these things yourself, you have to deal with all of it yourself which can be a huge PITA. Worth it if you are making a crapton of money, not worth it if you are not. Also, if your contract doesn't get renewed, you are out of a job and can't collect UE.
Some benefits to consulting, in general, are significantly higher pay, you can set your own hours, they technically can't tell you where to work from (DH always had/has office space available to him if he wanted to come in and work, which he prefers, but he does have a home office and works a lot from home, too, and has even worked a full-time schedule while on vacation in Hawaii), and DH never had to sign a non-compete as a consultant so he could, and did, pick up side-gigs that interested him. When we weighed the situation, we decided that the risks were worth it for us and it has paid off.
In your friends situation, it doesn't sound worth it to me, but only she can make that call. Also, it doesn't really sound like she will legally be a 1099 contractor, as a pp pointed out, but since the info is all second-hand who knows?
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