Payments to  Contractors / 1099

Because our company is based in California & New York, there are strict regulations with subcontractors and workers comp. coverage, etc. We can pay you direct as a subcontractor as long as you own/operate a company with a valid Business EIN & Business Bank Account. We would require a W9 and an invoice in this case and we can pay the full amount per contract. You will receive a 1099 at the end of the year and will be responsible for your own taxes.

Payments to Employees / W2

If you do NOT own/operate a company and only have a social security #, we will need to enroll you as a part time employee and pay you through our Justworks Payroll platform via a W4. This way, you are covered through our workers compensation. You will receive a link to sign up and we will need a copy of a valid drivers license or passport. Please note that if going this route, taxes will be withheld from your payment. You will receive a W2 at the end of the year. The % withholding amounts can vary by state and your own financial situation. This can vary anywhere from 20% up to 40% in some states which may be a shock to some freelancers. However, you will often get tax refunds as well. Please see more information below.

Comparisons

If you worked the same job at the same pay rate for two companies, one as an employee and one as an independent contractor, your year-end income statements would look quite different.

For example, if your earnings totaled $10,000 from your employer (Job A) and your contractor work (Job B), your 1099 from Job B would show the full $10,000 in your earnings, and you would have received every dollar of that payment. Your W2 from Job A might show a total closer to $8,000, plus list the taxes already deducted for social security, federal income tax and Medicare taxes, totaling the remaining $2,000. While the 1099 income might seem better because you get $2,000 more, you are still responsible for paying taxes on that income. Employers cover approximately half of the taxes, not including personal income tax, deducted from your paycheck, but as a contractor, you are responsible for the full amount. This means that out of the $10,000 you received from Job B, you may actually owe closer to $3,300 instead of the $2,000 deducted from the Job A paycheck.

Independent contracting (1099) works well for people who plan ahead and manage money well. You can set aside a portion of your income each time you complete a project and earn interest on that money before sending payments to the IRS. You are also more in control of your own schedule and work methods. However, as a regular employee, you get to keep more of your earned pay after taxes are paid and you may receive additional benefits from your employer. The best type of work for you depends on the type of work you do and your comfort level in dealing with your own taxes or hiring a professional to help you pay the appropriate amounts to avoid fines and late fees.

Resource: https://www.sapling.com/8756784/1099-better-w4

 

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