First, the IRS definition of 1099 form is: Form 1099-MISC is for miscellaneous income paid to non-employees, such as independent contractors. The IRS says the worker is an independent contractor "if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done." Earnings from independent contractors are also subject to self-employment tax.
Second, the IRS definition of a W-2 form is: Form W-2 is a wage and tax statement you issue to employees. When an individual performs services that are controlled by you, and you are the one that determines what will be done or how it will be done, the individual should be classified as an employee, according to the IRS.
That’s pretty simple and normally your employer knows which form to use and you don’t have to worry about it.
Until it’s time to pay your taxes.
Note the last sentence of the 1099 definition – “independent contractors are also subject to self-employment tax.” That means that you are required to pay taxes on what you earned – but your employer is not required to withhold those taxes from your pay. Another point regarding independent contractor pay is that employers are not required to withhold Social Security or pay the matching funds. (In case you weren’t aware – for every dollar you pay into Social Security, your employer is required to pay a matching dollar)
Not only are you responsible for being sure that you pay the taxes on your income as an independent contractor, you are required to pay both the employee and the employer portion of the Social Security tax.
At this point in time, there is quite a bit of controversy about the definition of independent contractors – particularly for what’s termed “gig workers” (Gig worker means independent contractors, online platform workers, contract firm workers, on-call workers and temporary workers) Gig workers enter into formal agreements with on-demand companies, for example Uber, TaskRabbit, to provide services to the company's clients) (https://en.wikipedia.org/wiki/Gig_worker). Eventually, the final definition is most likely going to be made by the Supreme Court.
It’s important for you to do your homework before you decide on any job. Always ensure that you know know the legality of your agreement and make sure your taxes are being handled. Best wishes from EBR Consulting on your job hunt and please contact us if we can help!