Whether you’re adding gig work or freelancing with your “regular” work, finding jobs through a staffing agency, or just getting started on your taxes – it can be confusing to know which employment tax form to complete. When comparing different forms, a common question asked is “Am I filling out the right one?” While your employer determines this when you first start working with them, it helps to know some of the key differences between a W-2 employee and a 1099-MISC worker.
The easiest differentiator between the two types of workers is whether taxes are withheld. Workers using a 1099-MISC form are considered self-employed independent contractors. Social Security and Medicare taxes are not withheld and 1099-MISC workers are required to pay their own taxes, the “self-employment” or “SE” tax. W-2 employees have a percentage of each paycheck withheld by their employer and a portion of their employment taxes are paid for by the company. (For more information, consult the IRS and read more on their website.)
So what are other differences between 1099-MISC and W-2 employees? PeopleReady shares three key points to keep in mind.
Does your boss control what type of work you do, when, and how you do it? If yes, the company has behavioral control, most likely deeming you a W-2 worker. If you work through a staffing agency, like PeopleReady, you could be a W-2 employee with the agency. 1099-MISC workers do not have a boss they must report to, but they are required to find their own jobs and clients, create their own contracts, and manage their tax deductions.
Financial control applies to how a worker is paid. In many W-2 scenarios, the employer decides when the worker is paid and for how much. A 1099-MISC independent contractor will define their payment through various contracts dependent on the project and clients they work with.
Relationship with Employer
Do you have set length of time you’ll work for the employer- maybe a few shifts or a set several weeks? Or is your time of employment indefinite, as there are no plans on you leaving? Each of these factors can help determine the type of relationship, whether you’re an employee or independent contractor. Working through a staffing agency can influence this: you may be a W-2 employee through the staffing agency, being connect to jobs for an outside customer or business. You may be a W-2 employee for the agency, since you will work with them for an indefinite period of time. It’s always a good idea to double check with your recruiter or agency representative if you’re not sure of your employment type, or with a finance expert if you have questions about your tax situation.
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