What is a 1099 Employee?
This is Everything You Should Know
Are you considering starting a business of your own? If so, one of the questions you might have is how to pay yourself from the profits you make.
When you earn money from the services you provide, you are technically a 1099 employee. But what is a 1099 employee?
If you are wondering what this means, continue reading to learn more about what it means for a person to be a 1099 employee.
What is a 1099 Employee?
Traditional-style employees work for a company, and the company pays them income through paychecks.
Employers often create these checks with a pay stub generator, and the pay stub shows all the deductions and withholdings from the income. Deductions and withholdings refer to the taxes and payments you must pay from your earnings.
When you are a 1099 employee, you don't receive a paycheck and pay stub. Instead, you receive the full amount of income you earned from the companies you provide services to.
These businesses do not withhold taxes or other deductions from the checks they give you.
You Are Fully Responsible for Your Taxes
When you receive a check for the services you provide, you become responsible to pay the taxes for the income. This feature is one that sets a 1099 employee apart from a traditional employee.
Not only are you responsible for paying federal, state, and local taxes yourself, but you are also responsible for paying the payroll taxes you owe. Payroll taxes consist of payments to Medicare and Social Security.
When you work for a business, you pay half of these payroll taxes, and the employer pays half. Because you do not have an employer paying half of these taxes, though, you must pay the full amount.
As a 1099 employee, you pay double the amount for payroll taxes than a traditional employee pays.
Lines of Work That Fall in This Category
There are a lot of lines of work that fall into the category of a 1099 employee, and there are specific rules you must meet to be a 1099 employee. Here are some examples:
- Building trades - If you work as an electrician, the companies you provide services to will pay you as a 1099 employee.
- Freelance work - People who offer freelance services online also get paid as 1099 employees.
- Ridesharing - Ridesharing workers also fall into this category.
As a 1099 employee, you have the freedom to work when you want. You also have the freedom to work as much or as little as you want. You do not reap the benefits of employer-sponsored programs, such as a 401k or health insurance plan, though.
Understand What Being a 1099 Employee Means
What is a 1099 employee? While it may seem complicated to understand, they are actually not very different from W2 employees.
The main differences come up when you look at taxes and payment options.
Do you want to learn more about 1099 employees? If so, there are a lot of articles you can read to learn more about this unique type of worker.
Learn more by visiting our website for more helpful blogs about this subject!