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What is a 1099 employee?

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A 1099 employee is an independent contractor. In contrast to the title, 1099 employees aren’t employees at all, but self-employed contractors. The term 1099 employee comes from Form 1099 that contractors use to report their earnings. Freelancers, consultants, self-employed workers, and sole proprietors are all examples of 1099 employees.

Is it worth it to become a 1099 employee?

1099 employees have more control over their work and a flexible schedule. 1099 employees can also earn more money depending on their experience and the service they provide. One downside is that 1099 employees must manage their own taxes, are not entitled to employee benefits, and may not always have a stable income.

Why do companies hire independent contractors?

1099 independent contractors usually have specialized skills required for a job or project. Employers benefit by not needing to spend time and resources training employees or providing them with tools. Contractors can start immediately and provide their own equipment during the project.

How do companies pay a 1099 employee?

  • Step one: Have contractors fill out the W-9 form to collect employee information such as their TIN number, legal business name, contact information, Social Security number, and full legal name.
  • Step two: Pay contractors accurately and on time. Be sure to keep all payment records on file.
  • Step three: Check if the business needs to pay backup withholdings. If the contractor provides the wrong TIN, businesses may need to pay a 24% withholding rate.
  • Step four: Use the W-9 to fill out Form 1099.
  • Step five: Send out the 1099 by January 31st to avoid IRS penalties.

Can employees switch from a W2 to a 1099?

Whether for business reasons or the employee’s request, employees can convert from W2 employees to 1099 contractors. The individual will need to work for the company in a different capacity. In this instance, review all local labor laws and regulations to remain in compliance.

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