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As a 1099 contractor, you receive more tax deductions like business mileage, meal deductions, home office expenses, and work phone and internet costs, as well as other business expenses that can lower your taxable income. Therefore, contractors might end up paying fewer taxes than a traditional employee would.
The 1099 form, by contrast, records income you received as an independent contractor or for some other source of income.
House Bill 4390 would define an "independent contractor" as a worker who meets all three of the following criteria: The individual is free from the employer's control and direction in connection with the performance of the work. The individual performs work that is outside the usual course of the employer's business.
2 is a separate form from a 1099, the primary difference being that the W2 is issued to employees on the company payroll, whereas a 1099 is given to independent contractors and other nonpayroll workers.
Regarding taxes and IRS requirements, there are differences between 1099 and W-2 employees. Workers (W-2 employees) typically enjoy amenities like benefits packages, paid time off, and a fixed income. While independent contractors (1099 workers) typically have to fund their own health insurance and retirement expenses.
Employees work for someone else's business, whereas contractors run their own business. Employees are paid hourly or salary, contractors are paid upon the completion of a project. Employees use materials and tools provided by an employer; independent contractors use their own.
If you file taxes with a 1099, you must pay that additional 7.65% in taxes. This comes to a total of 15.3% in payroll taxes. Of that total payroll tax, the IRS allows you to deduct between 50% and 57% from your taxable income.