W-2 or 1099?

You will receive either a W-2 form or a 1099 form from companies that you have performed work for, depending on if you are considered an employee or a contractor.

Am I an employee or a contractor?

You may ask yourself, "Why do I care if I am classified as an employee or a contractor?" In short, the amount of tax that you will pay will be quite different if you are an employee or a contractor. When you are classified as an employee, your employer pays a percentage of your tax. Independent contractors must pay the entire tax burden themselves. For this reason, some businesses misclassify employees as contractors to escape that tax burden.

So how do I know for sure which I am? In short, as far as the IRS is concerned, if you receive a 1099 from your employer, your employer is considering you as a contractor. If they send you a W-2, they are considering you an employee.

General Guidelines to Help You Determine If You Should Be Classified As a Contractor or an Employee

The acronym ETC can help you to determine if you are an employee or a contractor where:

E = Exclusivity: Do you perform work exclusively for this company or individual? Are you prohibited from working for others? If the answers to these questions is yes, you are likely an employee.

T = Tools: Do you provide the tools necessary to perform your job? This may include computer software, power or hand tools, or other physical or software requirements to perform the tasks that you perform for an employer. If you provide this kind of tools, you are likely a contractor.

C = Control: Do you determine how, when, and where the work is performed? Can you show up for a job when you want to? Can you determine the best way to carry out the task assigned by your employer? If the answer to these questions is no, you are likely an employee.

If You Have Been Misclassified as a Contractor

If you evaluate using the ETC guidelines listed above and find that you have been misclassified as a contractor, contact your employer to point out the problem. If they will not work with you, you may contact the IRS to report the misclassification and they may be able to remedy the situation. Misclassification of employees as contractors is a hot topic in human resources right now and laws exist to help those that may be affected.

Employers may avoid legal entanglements by being very clear on what their employees and contractors do and specifying guidelines for human resources personnel such as using standardized job descriptions to help define what tasks will be carried out by employees vs. contractors.