1099 Independent Contractor Tax Benefits

Alicia Simone James

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1

Do you have independent contractors or employees?

Typically an independent contractor: (1) does not receive employee benefits such as health insurance or retirement benefits, (2) has a more flexible work schedule or location, and is (3) paid when the service is completed. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.

2

Facts that provide evidence of the degree of control and independence fall into three categories:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job? 2. Financial: Are the business aspects of the worker's job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) 3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Additional Resources

If you are switching employees to independent contractors you can sell them on the following benefits: 1. 1099 contractors can use business tax deductions against self employment income. A 1099 contractor can deduct ordinary and necessary business expenses (cell phone, mileage, internet etc.) from the gross amount of income received.

Independent Contractor Taxes

For more tax tips visit the tax law blog

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