Home Improvement Contractor - Licensed Contractors

Is it better to be classified as an employee or an independent contractor?

Is it better to be classified as an employee (receive wages on Form W-2) or an independent contractor (receive Form 1099-MISC)? Why? What are the pros and cons?

Public Comments

1. Depends on your income and expenses. W2 employees have payroll taxes taken out as they are paid. 1099-Misc nonemployee compensation is not taxed, and thus you must file a Schedule C for business income at the end of the year and file a schedule SE for self-employment tax which is 15.3%. 1/2 of this will be a deduction on your taxes. If you have a lot of expenses to offset your work, then 1099 is usually better, but most full-time employees will be w2 employees. For tax purposes, W2 is much easier to deal with.
2. It's not a choice. Either you are a contractor or you aren't.
3. Employees only pay half of their social security and medicare taxes. Their employers pay the other half. If you are an independent contractor, you have to pay both halves. Also as an independent contractor, you'll have to file a Schedule C which most tax preparers charge quite a lot to file. Employees can only deduct business expenses if they itemize and then only what surpasses 2% of their income. Contractors can deduct all of their business expenses. However, this usually doesn't make up for the extra taxes.
4. Read employee vs independent contractor: http://taxipay.blogspot.com/2008/03/w2-or-1099-employee-or-independent.html
5. If you and not your the person you work for determines what hours and certain other decisions about your job. You are an employee. If you determine when you work and how you do your job, along with other items, you may be an independent contractor. The IRS website as a great explanation on what is classified as an independent contractor. As the other answers indicated, if you are an independent contractor then you have to pay the entire SS and medicare at 15.3% in addition to regular federal income tax. Remember that ICs do not qualify for benefits or paid time off, you also will be required to pay quarterly estimated tax payments. Visit the IRS website for more details.