I see quite a few threads on this sub asking about taxes and pay as an “independent contractor” or “1099 employee” where the OP goes on to say they have a set schedule, set work assignments, and get paid at regular intervals. This IS NOT what an independent contractor is, and there’s a good chance the worker in question is being misclassified as a contractor when they’re in fact an employee.
Employers misclassify employees as contractors in order to avoid paying payroll taxes like unemployment insurance premiums and the employer’s share of FICA (Social Security and Medicare) withholdings. The misclassified workers also don’t get the protection of worker’s compensation or other employment laws. It’s a rampant problem (especially in recent years), and any “independent contractor” should take a careful look at their business relationship.
There are laws in most states that distinguish a true contractor from an employee, and the IRS has its own set of standards (see www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee). In a nutshell, being a contractor or employee comes down to how much control the business paying you has over your work and finances.
- If the business you’re working for can tell you when, where, and how to work or has set methods/procedures, you’re probably NOT an independent contractor.
- If your job performance is measured against the business’s standards, you’re probably NOT an independent contractor.
- If the business you’re working for reimburses your expenses, gives you tools/equipment and materials to do your work, or pays you by the hour, week, month, etc., you’re probably NOT an independent contractor.
- If you only work for one company, provide services to them full-time, and do so continuously (i.e. not project-based work), you’re probably NOT an independent contractor.
- If you can quit or be fired at any time without cause/notice or financial repercussions (i.e. working at-will), you’re probably NOT an independent contractor.
If you think you might actually be an employee based on factors like these, but are getting a 1099-MISC instead of a W-2 and are being treated as a “contractor,” Please Report It to your state’s revenue agency, unemployment agency, and/or labor department. You can also file Form SS-8 with the IRS, but the IRS is very underfunded/understaffed right now, so you may want to reach out to your state’s agencies first. Your state can probably do an audit and then refer the findings to the IRS on its own.
Worker misclassification is a HUGE problem that needs more attention. Businesses might save on payroll taxes by passing off employees as “contractors,” but the misclassified worker gets all of the tax liability and none of the protections.
tl;dr – Employees get misclassified as “independent contractors” all the time. Know the factors and report it if you think something’s amiss.