Independent Contractor (Self-Employed) or Employee?

 

Truth beith spoken by ye. The extra 7.65% of the Employer Share of Social Security and Medicare Tax is the automatic hair-cut from W-2 to 1099 if the money stays the same.

A big item missed when demoted from W-2 to 1099, which you did not mention, is that the 1099'er likely also does not have 'Workers Compensation' to cover him or her with an injury claim while performing a task on the job.

The last quote I was able to obtain for Workers Compensation is about 16%, or sixteen-cents on ever dollar grossed. Hence, we are at around 23.65% cut in benefits from W-2 to 1099 if the money stays the same. We have not even discussed unemployment or vacation benefits yet.

I am attach a spreadsheet to that shows the erosion of the pay rate from W-2 as the driver gets subjected to 1099, then 1099 & WC not provided. The rates are calculated to the nearest hundredth of a penny. If you are getting 1099 & WC'ed, then follow the row back to the left to see what you should be getting paid to make up for the pay rate difference for the benefits that you are not receiving.

I cannot get my spreadsheet to upload. I will try to get a copy/paste of the numbers.


W-2 1099 1099 & WC

60 55.41 45.81
59 54.49 45.05
58 53.56 44.28
57 52.64 43.52
56 51.72 42.76
55 50.79 41.99
54 49.87 41.23
53 48.95 40.47
52 48.02 39.70
51 47.10 38.94
50 46.18 38.18
49 45.25 37.41
48 44.33 36.65
47 43.40 35.88
46 42.48 35.12
45 41.56 34.36
44 40.63 33.59
43 39.71 32.83
42 38.79 32.07
41 37.86 31.30
40 36.94 30.54
39 36.02 29.78
38 35.09 29.01
37 34.17 28.25
36 33.25 27.49
35 32.32 26.72
34 31.40 25.96
33 30.48 25.20
32 29.55 24.43
31 28.63 23.67
30 27.71 22.91


You can see that if you are getting paid 40 cent-mile W-2 with WC coverage, and then you company starts to 1099 you, you immediately take just short of a dime per mile pay cut. I am getting 38 cents per mile 1099 (yeah, I know, but this is just the best I can do right now), so I would really need a bump to 50 cents per mile to get this 38 cents 1099 to equal 38 cents W-2 with WC coverage.

 

---Duplicate Posting---

 

I have my own authority and my drivers are all w2, not 1099. I am debating on having 1-2 trucks lease onto me which will be 1099. Any of my companies will always be w2 though.

 

I have worked on both a W2 and 1099. Personally, I prefer a 1099. But, I am a responsible individual and there can be some tax benefits to being paid on a 1099. If you are paid on a 1099, you may or may not have workers comp available. In any case, you can always buy an occupational accident policy. OOIDA sells on for about $140/month. It really isn't as big a deal as some have posted. Everyone needs to decide whether they want to work on a 1099 or a W2. All carrier's also need to decide how they want to pay drivers. With all the new regulations and Obamacare, you will likely find more carriers paying on a 1099. I would also expect to see more carriers offer a lease program in an effort to reduce their tax bite. Offering a lease purchase makes it easier to meet the definition of an independent contractor with the IRS.

 

Thats the IRS job not the owners. If you own a 2nd truck with your name on the door etc. and he just drives. I bet the IRS will tell you that you have to W2 him by law.

 

The IRS could care less as long as they get their tax money. The problem with a 1099 is that the worker may not always pay their taxes and when the tax evader is caught tries to lay blame on the carrier or company. You will never have a problem paying on a 1099 unless a contractor who is EVADING his taxes, turns in the company in an effort to evade paying his taxes. Someone who does that is really scum. They take the extra money that they receive and instead of paying their taxes, they blow the money. Everyone should be responsible for their own taxes. The reason that congress originally set up the rules for employers to deduct taxes from workers pay is that they thought that most people would not pay their income taxes unless forced to do so. Most people who are paid on a W2 receive a refund on their taxes. That means that they paid the IRS too much tax. Essentially, when you receive a refund you have given the government a interest free loan. You could have invested that extra money or put it in a savings account. It is unfortunate that there are so many people in this country who avoid personal responsibility. If you are not a responsible person, then continue working under a W2 and let others control your money.

 

This is simply incorrect regarding the IRS. They really do have a definition of what hoops one must jump through to be a 1099 vs. an employee on a w-2. Most people, emphasis on most, who think they are independent contractors don't really qualify under the IRS's definition.

From the IRS's website:

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

Link to site: http://www.irs.gov/Businesses/Small-...ractor-Defined

 

1099 an employee fits right in with a LP. The employer that uses a 1099 extolls the virtue of it,as they avoid any of the associated payroll taxes. A cheap occupational health policy instead of comp,no chance of UC if you're fired without cause,the employee paying both sides of fica and medicare. And of course they don't offer a higher rate of pay because of that.

 

I understand that the IRS has a definition of what constitutes an independent contractor and that some may not meet that definition. However, unless the contractor fails to pay his taxes, it should not be an issue with the IRS. There has been some discussion by the IRS to eliminate the independent contractor classification, even with owner operators. I am not sure how that would work, but it might prove to be interesting.