I worked full time for a company most of the year (til Oct) and then lost my job. Now I'm going to freelance for another company and am wondering what's the best way to go about collecting my pay. I do own a small business which I can can then bill them and get a 1099. The other option is to go ahead and use their payroll, etc... and avoid the 1099 all together. Last year on my taxes, I noticed that because I received 1099's I lost almost all the tax money I had coming to me from a previous full time job... so I'd like to avoid that this year. Any suggestions on what's the best way to go about this?
United States - 5 Answers
Random Answers, Critics, Comments, Opinions :
1 :
You have already answered your own question. If you take a 1099 then any taxes withheld during the year will go to pay the FICA and FIT as you have no withholding on a 1099.
2 :
It's not just a matter of choice - there are IRS rules on whether you are an employee (W-2) or independent contractor (1099). It depends on the conditions of your work. If you are just given a project, with broad latitude on HOW, WHERE and WHEN to do it (except for the deadline) then you are a contractor. If you must work in their office, on a schedule set by them, then you are most likely an employee. A contractor is generally paid a flat amount for a project, an employee is paid hourly or on a salary. You'll pay more tax as a contractor, since you'll pay the ss and medicare match that the employer pays for an employee.
3 :
In addition to above two answer, Please keep in mind that you always have more benefits (legal / tax benefits) as an employee as compared to outside contractors! You can get unemployment, workers comp, disability coverage, and medical /life insurance deductions by state / employer if work as an employee. You can ask me any questions at suecampbell70@yahoo.com or to get free tax help visit - http://www.taxguruhelp.com Hope that helps! S.
4 :
when you get paid via a 1099, you have an obligation to make estimated quarterly payments to the IRS. So the simplest thing is let them put you on payroll. there are some other benefits to that as well, like unemployment insurance, and having the income count toward social security benefits down the road, but that comes at some cost to you as well. Overall, it sounds like you might prefer being on the payroll, all things considered.
5 :
with a 1099 - you have to pay all your own taxes including the par of soc sec taxes that is normally paid by the employer - if they let you - go on payroll and get extra federal inc tax withheld to help pay your overall federal tax liability and anytime you get paid by a 1099, you are supposed to put a portion of that money aside and make quarterly estimated tax payments to fed and state
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