1099 Employees – No Such Thing

Persons tell me that their employer classified them as a, “1099 Employee.” Let me be very clear about this:

THERE IS NO SUCH THING AS A 1099 EMPLOYEE!

Someone is either an independent contractor, in which event if that person receives over $600 in a year this amount must be reported via an IRS Form 1099-MISC, or he or she is an employee.

There is a multi-part test to determine whether someone is a contractor or an employee, but if the business states someone is a “1099 Employee” it is near certain that person is an employee, and must treat the person as such, including making all appropriate deductions.

And being liable for these taxes if the “1099 employee” does not. A personal illustration. A law firm I worked for did not deduct taxes from my associate’s salary until the IRS told it to. It was sort of a “no harm, no foul” situation, since I had made the appropriate payments, just do it correctly in the future.

However, one of our firm’s clients operating an exotic dance club, and did not deduct taxes from the dancers’ pay. For most, it did not even have their real names, and hence no way to determine whether the dancers made the appropriate tax payments, and it was a near certainty they did not. That business got stuck with a large tax bill.

A future post will deal with test for determining contractor v. employee.