# 1099's vs. Actual Employment...



## e.rose (Mar 10, 2015)

This is gonna be a weird question, but bare with me...

So... 

Does anyone have any insight to the disadvantages to having someone work for you as a sub-contractor and paying them as such and having a 1099 for them during the tax year, rather than bringing them on as an actual employee?

I'm not asking because I have someone like that I'm working with... I'm asking because I *am* the one like that... haha.

I was just thinking about this today... and in the capacity that I'm working with my friend on his business... he's definitely going to have to do a 1099 for me. After $600 in TN is when that is required to be reported, and he's definitely going to end up paying me more than that by the end of the year.

And quite frankly, I'm okay with not being an official employee, because as far as I'm aware, for me to be an actual *employee* he needs to provide insurance and workers comp and all that crap and 1. I have insurance through my day job and 2. I don't want him to have to worry about *any* of that. At least not right in the beginning, during the first year or two of us working together.

So is there anything that I'm unaware of with working as a 1099 contractor for him, that... could potentially be a downside or bite us in the a**? 

I can't imagine what that would be, but I want to make sure we're not accidentally getting ourselves in trouble eventually by doing it this way.


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## Vtec44 (Mar 10, 2015)

Health insurance and other benefits as a full time employee, and accounting advantages for big corporations since technically you're not on the payroll.  Other than that, I don't know of any "hidden" benefits.


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## e.rose (Mar 10, 2015)

Vtec44 said:


> Health insurance and other benefits as a full time employee, and accounting advantages for big corporations since technically you're not on the payroll.  Other than that, I don't know of any "hidden" benefits.



I'm confused, are you saying that I'd be missing out on health insurance and benefits, but that if it were a big corporation they'd be gaining accounting advantages?

^^^^If that's the case, I'm cool with that. 

As long as he's cool with the paperwork involved during tax filing season (and he will be if it'll cost him less, haha), then I'm good with being a 1099 contractor.


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## snowbear (Mar 10, 2015)

I come from the local government (county) environment and for them, it comes down to benefits.  Contractors get no benefits such as health insurance, leave, overtime, or worker's compensation from the County.


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## Gary A. (Mar 10, 2015)

Be aware that employment laws differ from state to state. A 1099 is a form sent to the tax authorities informing them of how much you've made so the authorities can keep an eye open for your tax payment(s). You may have to make quarterly reports/payments. In Californian, a 1099 means that you may not be eligible for employment benefits ... ala ... health insurance, sick days, breaks, overtime, worker's comp, et al. In California, a 1099 means that you choose your own hours, use your own equipment, you can incorporate/DBA and subtract your expenses from your revenues and pay taxes only on the profit.


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## e.rose (Mar 10, 2015)

Gary A. said:


> Be aware that employment laws differ from state to state. A 1099 is a form sent to the tax authorities informing them of how much you've made so the authorities can keep an eye open for your tax payment(s). You may have to make quarterly reports/payments. In Californian, a 1099 means that you may not be eligible for employment benefits ... ala ... health insurance, sick days, breaks, overtime, worker's comp, et al. In California, a 1099 means that you choose your own hours, use your own equipment, you can incorporate/DBA and subtract your expenses from your revenues and pay taxes only on the profit.



Oh, I know how it works for *me*. I've had to file 1099's before.

I just want to know what it looks like for *him*.

I've had to issue a 1099 for one of my hair/makeup artists this year, but she made exactly $600 and then moved to LA, so I don't have to worry about her anymore.

But I'm working for Matthew under a very consistent employment at this point, so I just wanted to make sure there wasn't like... a certain point of income where you *had* to hire someone on as an employee rather than as a 1099 contractor.


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## Gary A. (Mar 10, 2015)

e.rose said:


> Gary A. said:
> 
> 
> > Be aware that employment laws differ from state to state. A 1099 is a form sent to the tax authorities informing them of how much you've made so the authorities can keep an eye open for your tax payment(s). You may have to make quarterly reports/payments. In Californian, a 1099 means that you may not be eligible for employment benefits ... ala ... health insurance, sick days, breaks, overtime, worker's comp, et al. In California, a 1099 means that you choose your own hours, use your own equipment, you can incorporate/DBA and subtract your expenses from your revenues and pay taxes only on the profit.
> ...


State Law dictates if you are an employee or an independent contractor ... not a 1099. (In California, employers are stung everyday by 1099 folks, who, per state law, are actually employees and sue the employer or former employer for unpaid benefits. I don't think you fall into that category of suing your employer ... so there is probably little liability on his end. While I am an employer, I am not an expert on these matters.)


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## e.rose (Mar 10, 2015)

Gary A. said:


> e.rose said:
> 
> 
> > Gary A. said:
> ...



Yeah, definitely not planning on suing him, haha. This is a very mutually beneficial arrangement to keep it this way, for now. 

What department do I need to go to in order to get the correct information for this in TN? 

Is that the... I dunno, department of revenue's area? Do you know?


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## Vtec44 (Mar 11, 2015)

e.rose said:


> I'm confused, are you saying that I'd be missing out on health insurance and benefits, but that if it were a big corporation they'd be gaining accounting advantages?



Yes.  In addition to not having to pay for the benefits, big corporation also use this as a way to reduce head count, hence, looking good on their accounting.


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## e.rose (Mar 11, 2015)

Vtec44 said:


> e.rose said:
> 
> 
> > I'm confused, are you saying that I'd be missing out on health insurance and benefits, but that if it were a big corporation they'd be gaining accounting advantages?
> ...



Cool. Well as long as Big Brother isn't gonna come after him for not having me on as an actual employee, I'm good.


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## TreeofLifeStairs (Mar 11, 2015)

Gary A. said:


> e.rose said:
> 
> 
> > Gary A. said:
> ...


It's not really the state that determines it. They just go along with what the fedral government says. Here's a link to the IRS web site about 1099 vs w-2. Independent Contractor Self-Employed or Employee. Wrongly classifying what you are can be bad if you/he is audited. It comes down to who is paying the taxes. As 1099 you pay all taxes. As w-2 you share the taxes.


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## e.rose (Mar 11, 2015)

Independent Contractor Defined

This is so vague.

Like... I don't have set full time hours. Or part time hours. Or set hours at all. I just do things as needed.

Like at 1am last night when I had an idea and started doing some quick research while I was in my PJs in bed. Hahaha. 

I don't have a uniform or a dress code... He doesn't control HOW I deal with his paper work or emails, but I have an email address emily@athisdomain.com -- So like... This doesn't make any sense. Haha. He doesn't pay me a salary... I don't make hourly wage... I make a percentage off of the shoots he books.

I pay my taxes on my 1099's. It's not like I'm planning on NOT doing that.


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## Braineack (Mar 11, 2015)

e.rose said:


> Cool. Well as long as Big Brother isn't gonna come after him for not having me on as an actual employee, I'm good.










Matthew, I'm a friend, right? So you'll let Emily work here?


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## pgriz (Mar 11, 2015)

I'm not in the USA, so this may be completely irrelevant for you, but in my jurisdiction, the reason why the tax authorities care about whether someone is a contract worker or employee is because if you're an employee, then there are workman comp payments due by both the worker and the employer.  It also links to the filing frequency of both income tax (installment payments) and sales tax, and whether you will be allowed to deduct expenses or not.  So, if you're an employee, they then shake down the business, whereas if you're a sub, they have to keep tabs on you.


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## KmH (Mar 11, 2015)

An employer in the US pays 1/2 of an employee's FICA payments.
States also require an employer pay unemployment insurance and workman compensation insurance payments.

All of that is why employees usually get paid considerably less than contractors get paid.


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## Designer (Mar 11, 2015)

As someone who has been an employer, an employee, a contractor, and has hired contractors, I can tell you that the single best thing you could do is to call your State Department of Revenue and ask them.  They've got people sitting by the phones  waiting to answer your questions.


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## e.rose (Mar 11, 2015)

Designer said:


> As someone who has been an employer, an employee, a contractor, and has hired contractors, I can tell you that the single best thing you could do is to call your State Department of Revenue and ask them.  They've got people sitting by the phones  waiting to answer your questions.



So it *is* the Department of Revenue, then?


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## Designer (Mar 11, 2015)

e.rose said:


> Designer said:
> 
> 
> > As someone who has been an employer, an employee, a contractor, and has hired contractors, I can tell you that the single best thing you could do is to call your State Department of Revenue and ask them.  They've got people sitting by the phones  waiting to answer your questions.
> ...


That what it's called here in Iowa.  I worked in that department for a while.


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## CCericola (Mar 12, 2015)

I was a 1099 contractor for years for a studio. Nothing wrong with it. It's the easiest way to employ people. I just had to remember to take out taxes. in PA we paid quarterly so we were not hit big at tax time. I was also able to write off travel expenses and mileage. I just had to keep a log.


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## bribrius (Mar 12, 2015)

in the capacity you are in, or seem to be in (thinking of your chasing money post the other day for him). you seem too involved for a 1099. If you used all your own equipment, went off his leads, but picked your own hours, and each shoot was a pre-set flat flee or contract negotiation over each shoot that would be 1099. If he gets audited and says you are doing his bill collecting/record keeping/going where he tells you for shoots/doesnt have a preset fee arrangement/ i don't see this flying. 1099's entail specific job performed for specific amount. Percentage based income is walking a "fine line" as percentages are usually reserved for partners, sales employees etc.. etc.   It would look far better if he just paid you x amount for each shoot you did and you said nothing about being paid on percentages. His income is not supposed to directly effect yours. As you are INDEPENDENT. But yeah, call the i.r.s.


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## JacaRanda (Mar 12, 2015)

Yup to all of the above and yup, it can be very confusing. 
As Bribrius mentioned, the tricky part can be where the job is, how or when you are told to be there, do you get paid mileage to and from the jobsite (do you go from an office or from your home) etc. etc.  It can be tricky and some of the laws seem to overlap each other.


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## AlanKlein (Mar 12, 2015)

Tell him to discuss this with his accountant to verify what's legal as far as you being Independent vs. an employee.  It's federal IRS law that takes priority, so contacting state tax people doesn't make sense.  Although he will save on Social Security and Medicare payments, Independent Contractors have to pay these out of the money he pays you.  And it will be double Social Security and Medicare amount.  You'll be paying for yourself and for the Employer . (Your cost will be 7.65% x 2 = 15.3% instead of just 7.65%).     The employer is shifting these expenses to you.  

Of course that's after expenses.    Be careful with writing off expenses.  You should check out with the accountant as well.  Some expenses are just consider normal part of work and cannot be deducted.


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## bribrius (Mar 12, 2015)

AlanKlein said:


> Tell him to discuss this with his accountant to verify what's legal as far as you being Independent vs. an employee.  It's federal IRS law that takes priority, so contacting state tax people doesn't make sense.  Although he will save on Social Security and Medicare payments, Independent Contractors have to pay these out of the money he pays you.  And it will be double Social Security and Medicare amount.  You'll be paying for yourself and for the Employer . (Your cost will be 7.65% x 2 = 15.3% instead of just 7.65%).     The employer is shifting these expenses to you.
> 
> Of course that's after expenses.    Be careful with writing off expenses.  You should check out with the accountant as well.  Some expenses are just consider normal part of work and cannot be deducted.


she could just marry him. Imagine the amount of headache that would save...


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## e.rose (Mar 12, 2015)

bribrius said:


> in the capacity you are in, or seem to be in (thinking of your chasing money post the other day for him). you seem too involved for a 1099. If you used all your own equipment, went off his leads, but picked your own hours, and each shoot was a pre-set flat flee or contract negotiation over each shoot that would be 1099. If he gets audited and says you are doing his bill collecting/record keeping/going where he tells you for shoots/doesnt have a preset fee arrangement/ i don't see this flying. 1099's entail specific job performed for specific amount. Percentage based income is walking a "fine line" as percentages are usually reserved for partners, sales employees etc.. etc.   It would look far better if he just paid you x amount for each shoot you did and you said nothing about being paid on percentages. His income is not supposed to directly effect yours. As you are INDEPENDENT. But yeah, call the i.r.s.



I'm not shooting for him.

When I second shoot wedding with him he pays me a flat rate, but that's not what I'm talking about.

I'm assisting him with administrative sh*t. *That's* what I'm talking about. I'm handling his booking inquiries, contracts, and invoicing, assisting on set, and retouching, to sum it up overall. There's other little things here and there.

It's tricky, because of the way we're doing it. We're good friends, and we're trying to help each other get off the ground. The way it used to be, he assisted me, I didn't pay him. I assisted him, he didn't pay me. It's been like that for a while.

But what we're doing *now*... is I'm essentially handling all the above mentioned administrative stuff, plus assisting him on set, but he's not paying me for any of it up front. What he *is* doing is giving me a percentage of every shoot he gets, because I'm not really *having* to do anything unless there *is* a shoot in the works. So everything I'm doing directly involves a specific shoot. He's not shooting... I'm not doing anything either. Ha.

(And before anyone spouts off about how "I'm getting ripped off", "He's taking advantage of me", etc., etc., I'm FULLY aware of what this arrangement is. *I* am the one that volunteered to help him, because I want to help support his career in anyway I can, because I fully believe in his talent and aspirations... and that's just what friends do. )

We'll adjust things as need be and as his clientele and work frequency grows, but for now this is what this is. It's a startup and I'm trying to help him in any way get this off the ground.

So that's why this is weird. It's such a strange in-between place.

When I retouch for him, I'm using my own equipment. Doing it on my own time, within my own timeframe, the way that I retouch.

When I'm emailing, and handling booking inquiries, I'm doing it from my own equipment (he hasn't purchased me a computer or anything like that, haha. That was bought by *me* for *my* business and personal use).

I've bossed him around a little and re-written some of his contracts and licensing, but that wasn't because he's directed me to... that's because that's me lighting a fire under his ass to get organized and moving... because of that whole, "I believe in you, now lets make this sh*t work," thing I was just talking about.  That was me taking my own initiative to help him. Haha.

And I mean this has only been a thing for the past... what? 3 weeks?

But I'm way more business minded when it comes to taxes, licenses, and all that sh*t, which is why I'm thinking this through now.

He pays his taxes, he files the 1099's he gets from HIS assisting jobs with the other commercial photographers in town... but everything else I've touched on isn't the kind of stuff he's used to having to think about. And neither am I, for that matter.

I could see it eventually becoming an actual employeer/employee type situation, and later on that's fine, because later on he will hopefully be making enough to actually support that, but right now I want to keep it as... low dollar as humanly possible for him, aside from what he's already paying me. But what he's paying me needs to be claimed on my taxes and his and we know that, and we're not sure how to go about doing it in a way that's not going to bite him in the a**, but still be legal. 

I don't want him to get in trouble, by accident... I also don't want him to have to be responsible for worker's comp and sh*t like that, right now.


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## e.rose (Mar 12, 2015)

JacaRanda said:


> Yup to all of the above and yup, it can be very confusing.
> As Bribrius mentioned, the tricky part can be where the job is, how or when you are told to be there, do you get paid mileage to and from the jobsite (do you go from an office or from your home) etc. etc.  It can be tricky and some of the laws seem to overlap each other.



I mean, he only tells me when to be somewhere if there's an actual shoot that day, and I'm assisting him (which is... every shoot he has, haha).

I don't get paid to travel, but then again, I usually just drive the 2 miles to his house and we carpool to the shoot (He drives. My car is sh*tty.  ).

I don't go from an office, because I don't have an office, and neither does he. We meet in his living room for all of our non-shoot proceedings... but then again it's not even a meeting. It's a (Me)"Hey, what are you doing tonight?" (him)"Sitting on my couch playing Hearthstone, why?" (me)"Cause I'm bored. I'm coming over to also sit on the couch and play Hearthstone. Also... since I'm gonna be there, maybe we should go over this contract for your shoot next week." (him)"Okay sounds good." (me)"Great see you in an hour." type of thing 

Like it's SUPER lax. Like I said, the only stringent part of it is when it's an actual shoot day.


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## e.rose (Mar 12, 2015)

AlanKlein said:


> The employer is shifting these expenses to you.



That's fine.



AlanKlein said:


> Of course that's after expenses.    Be careful with writing off expenses.  You should check out with the accountant as well.  Some expenses are just consider normal part of work and cannot be deducted.



I am literally writing of *nothing* having to do with him. All of my write offs are for my own business. I have zero expenses involved with working with him, other than the gas it takes me to drive the 2 miles to his house, which I'm not even gonna bother with.


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## e.rose (Mar 12, 2015)

bribrius said:


> AlanKlein said:
> 
> 
> > Tell him to discuss this with his accountant to verify what's legal as far as you being Independent vs. an employee.  It's federal IRS law that takes priority, so contacting state tax people doesn't make sense.  Although he will save on Social Security and Medicare payments, Independent Contractors have to pay these out of the money he pays you.  And it will be double Social Security and Medicare amount.  You'll be paying for yourself and for the Employer . (Your cost will be 7.65% x 2 = 15.3% instead of just 7.65%).     The employer is shifting these expenses to you.
> ...



1. Gross. He's like my little brother.

2. I'm already married... so... marrying him would ACTUALLY probably be MORE of a headache.


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## e.rose (Mar 13, 2015)

Also... I *will* call someone and ask.

When I find the cojones to do so.

Talking to IRS and Dept. of Rev. employees terrifies me.

I dunno why.


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## pgriz (Mar 13, 2015)

In the role you described, you're effectively the "office manager".  In the payment arrangements, you're also more or less a "partner" who shares in the income when it comes in.  However, there are administrative firms that provide professional administrative services and who charge for such services.  The billing method can be by the hour, or by the week, or a flat rate (like a retainer), and he can pay you when he can (so there may be a time gap between when the service is rendered, and when you get paid for it).  Ask the revenue department how professional administrative companies are set up and see if that meets your (collective) needs.


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## bribrius (Mar 13, 2015)

maybe she should be giving him the 1099.

In the years before i married my wife i just paid her cash and all expenses. Put me at a higher tax bracket with less deductions but oh well. So i just kept her out of it, paid her expenses and flipped her a few hundred here and there. Probably a different situation though. Avoided a lot of headache in that grey area. Lot wasn't in terms of actual money too. Pay car, housing etc. etc. So i would deduct the car as a expense but eat the money to her with just a higher bracket. In the paperwork i had drawn up by the lawyer it basically claimed her as "designated on my behalf" which gave her the right to deal with certain things. Listed her as a "designee/agent of".  Legal gopher/organizer basically. But it also separated her from being a employee. whatever it was, it worked. You may want to consult with a attorney too.


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## e.rose (Mar 13, 2015)

pgriz said:


> In the role you described, you're effectively the "office manager".  In the payment arrangements, you're also more or less a "partner" who shares in the income when it comes in.  However, there are administrative firms that provide professional administrative services and who charge for such services.  The billing method can be by the hour, or by the week, or a flat rate (like a retainer), and he can pay you when he can (so there may be a time gap between when the service is rendered, and when you get paid for it).  Ask the revenue department how professional administrative companies are set up and see if that meets your (collective) needs.



Thanks! That definitely lends to some clarity as far as what I need to be asking when I call about this!


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## e.rose (Mar 13, 2015)

bribrius said:


> maybe she should be giving him the 1099.
> 
> In the years before i married my wife i just paid her cash and all expenses. Put me at a higher tax bracket with less deductions but oh well. So i just kept her out of it, paid her expenses and flipped her a few hundred here and there. Probably a different situation though. Avoided a lot of headache in that grey area. Lot wasn't in terms of actual money too. Pay car, housing etc. etc. So i would deduct the car as a expense but eat the money to her with just a higher bracket. In the paperwork i had drawn up by the lawyer it basically claimed her as "designated on my behalf" which gave her the right to deal with certain things. Listed her as a "designee/agent of".  Legal gopher/organizer basically. But it also separated her from being a employee. whatever it was, it worked. You may want to consult with a attorney too.


Maybe it's because my coffee hasn't kicked in, but... You lost me after, "I just paid her cash and all expenses".


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