Employee or Independent Contractor

Question:  A gig I had last year was assumed to be under the table. The company now (Jan.) requested my tax info. What percent will I owe and is this legal?

“Assumed to be under the table?” Under the table is illegal, and if you know it. What you have proved is that there is no honor amongst thieves. The company had a “come to reality” session with its accountant, and now they are trying to make it all pretty.

So, what can you do? Precious little, other than provide the information to them. However, instead of sending them a W-9 form, which they probably requested, I would send them a W-4 form, all nicely filled in. Why? Well, if we are going to make pretty, let’s do it the right way. The chances are you technically should have been engaged as an employee, not an independent contractor. W-4’s are for employees. Be sure you keep a copy of the form.

Now, they will probably send you a 1099 anyway. So what you do is file a form SS-8, and ask the IRS, was I an employee or an independent contractor? Chances are pretty good IRS will say “Employee!” This will help you as I will explain.

So now when you file your return, you will need to attach a copy of the SS-8 along with a form 4852, and a form 4137.  A little Googling on Independent Contractor vs Employee will give you this info.

What does all this do for you? Basically, you don’t have to pay the part of the social security tax that your employer should have paid, but didn’t.

Why do employers pay their workers by 1099( no withholding)? Because they save oodles of money. They don’t have to pay the 7.65% employer’s FICA, no unemployment, no worker’s comp insurance. Big savings. Who ends up holding the bag? The 1099 worker. They have to pay 15.5% self employment tax, instead of the 7.65% that employees pay. Will this save you some serious dollars? Yes.

Some employers try to con their workers into 1099s by saying that the worker will get to take all their “expenses” such as the mileage to and from work, their cell phones, their “office in home” expenses, their computer, their internet, meals, blah, blah. Stark reality: no way, Jose. IRS has won case after case where workers tried this stuff and lost. If you are an employee, you don’t have this stuff. If you are self employed, you probably don’t have this stuff as a legit deduction.

I would suggest you see a CPA or EA about this, and bring along this Quora post. If they are legit and know what they’re doing, my suspicion is that they will do things the way I have suggested, which is the right way

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