1099 Employee Taxes

Taxes and Workers' Compensation for a 1099 Employee

(What you need to know)

1099 Employee Taxes

As a 1099 employee, what are your tax responsibilities? What about as an employer of a 1099 worker — what are you responsible for? All these things answered and more in this short read on 1099 employees. 

Contacting your independent insurance agent to seal the deal on some of these facts will be a good next step. They know exactly how to cover you as an employer and as a 1099 worker. So whichever one you are, you need to know what you're about to learn. 

What Is a 1099 Employee?

What Is a 1099 Employee?

First things first — 1099 employees are not employees at all, they are actually independent contractors. They go by a few different names such as:

  • Subcontractor
  • Independent contractor
  • Self-employed
  • 1099
  • 1099 employee
  • 1099 worker
  • Or a combination of the above

A 1099 worker is someone who you would hire for a particular job for a short period of time. The IRS is very literal when it comes to misclassifying a 1099 worker. 

In fact, there is a 20-point test that you can read through to make the proper determination and is available below for your reference. If that still doesn't answer your question, you can fill out a form SS-8 with the IRS and let them decide. 

20-point test to determine if a worker is 1099 or W-2: 

  • Actual instruction or direction of a worker: If you are telling a worker when, where, and how to work, then the IRS would most likely class them as an employee and not a 1099 subcontractor.
  • Training: If you are having to train the worker in any form or fashion, that would be classed as an employee by the IRS.
  • Integration of services: Integration of said services shows that the worker is an employee and should be classed as one.
  • Personal nature of services: If the services are rendered personally, then this indicates lack of control and may be indicated when the worker can hire a substitute with permission from the employer.
  • Similar workers: If you have similar workers doing similar job duties, then this is an indication of employer control over the job and should be classified as a W-2 employee.
  • Continuing relationship: If the relationship between the employer and the worker is consistent and ongoing, then this shows a need for a W-2 employee and should be classed as such.
  • Hours of work: If there are set hours that are required to complete the task at hand, then this is a job for a W-2 employee, not a 1099 worker.
  • Full-time work: Full-time work indicates control by the employer because it does not allow the worker to obtain other employment. 
  • Work on premises: If the worker must do their work on your premises, then employer control is implied and should be classed as a W-2 employee. 
  • Order of performance: If the order in which the worker performs their task is set by the employer, then you guessed it, this should be classified as a W-2 employee. 
  • Submitting reports: If the worker has to account for their actions by submitting written or oral reports, then this indicates employer control and should be classed as a W-2 employee. 
  • Method of payment: Payment method by the hour, weekly, or monthly implies employee-employer relationship and should be classified as such. If the worker gets paid from commissions or contracts, then they can qualify as a 1099 worker. 
  • Payment of expenses: Payment of any expenses or reimbursement is considered employer control and indicates a worker to be classified as a W-2 employee.
  • Tools and materials: If an employer furnishes tools or materials, this again indicates employer control and should be classed as a W-2 employee. 
  • Investment: If there is a substantial investment made by the worker in facilities used to perform job duties, then this indicates a 1099 worker.
  • Profit or loss: The potential for profit or loss by the worker indicates 1099 worker status. 
  • Exclusivity of work: Working for a number of different people at the same time indicates 1099 worker status. 
  • Available to general public: If the worker's services are available to the general public, then this usually indicates they are a 1099 worker.
  • Right of discharge: The employer has a right of discharge. The 1099 worker cannot be fired as long as they are keeping up to their end of the contract. 
  • Right to quit: The right to quite at any time indicates an employee-employer relationship and should be classified accordingly. 

Do You Pay Taxes for a 1099 Worker?

Are Long-Term Care Policy Premiums Tax-Deductible

The long and short of it is, no. As an employer, you would not pay employee taxes on a 1099 subcontractor because they are not an employee. If you are the 1099 subcontractor, you would pay self-employment taxes at tax time as you are operating as a self-employed individual.

You see, the way a true 1099 worker operates is like a freelancer. You hire them to consult or perform a job duty and that's it. They can do numerous tasks that you outsource them for, but they should not be full-time status. 

Reason being that as a subcontractor they need to be able to contract out to multiple persons at one time. If you are taking up all their hours, then you should be hiring a W-2 employee to do a full-time task, not a 1099. 

Time Requirements of a 1099 Worker 

This one gets its own section because it's just that important. As an employer hiring an independent contractor, you cannot under any circumstance require them to work certain hours, be at certain places at certain times, or schedule them for mandatory events or meetings. 

As a self-employed 1099 worker, they make up their own hours, rules, and are their own boss. Now you may have deadlines when a project needs to be finished, but how they get there is entirely up to them. 

There are obviously many other factors that the IRS looks at when classifying workers through that 20-point test, but time is a really key piece and should be made note of. 

Of course, your independent insurance agent can also help in determining how you should be classifying your workers and how it apply to workers' compensation insurance. 

Time Requirements Of a 1099 Worker

Including 1099s on a Workers' Compensation Policy — Yay Or Nay?

Well, that all depends on how good you are at collecting proper evidence of insurance from your subcontractors. An evidence of insurance is also known as a certificate of insurance.

Certificate of insurance: Shows proof of insurance policies and coverages that a business entity or individual possesses and what terms or dates they are good for. 

As long as you are collecting certificates of insurance on all subcontractors used, and the coverages and policies are compliant with what your insurance company requires, then you do not need to add them to your workers' compensation policy. 

However, if you are not so organized and forgo collecting those certificates of insurance, then the insurance company will slap on a nice bill at audit time accounting for those uninsured subcontractors. It doesn't feel very good to receive that invoice, so best do it on the front end and avoid the hassle. 

Benefits of an Independent Insurance Agent

While the benefits are many when working with an independent insurance agent, one in particular is that they know workers' compensation. An independent insurance agent can also be a fountain of knowledge when it comes to 1099 workers and how to classify them. 

Independent insurance agents have access to multiple insurance companies, ultimately finding you the best coverage, accessibility, and competitive pricing while working for you. Find an independent insurance agent in your community here.

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IRS. (2019). https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee