If, after reviewing all circumstances, it is still unclear whether you are an employee or an independent contractor, Form
SS8, Determination of Worker Status for Purposes of Federal
- can be filed with the IRS.
The form may be filed by either the business or the worker.
The IRS will review the facts and circumstances and officially determine the worker's status.
Be aware that it can take at least six months to get a determination.
Regarding financial difference...
Employee vs self-employed..
The difference is that FICA taxes for employee are paid partly by an employer and partly are withheld from wages. Self-employed taxpayers pay self-employment
taxes (equivalent of FICA). If you are paid $100 as an employee - without other considerations - that is equal to $107.3 of self-employment compensation
There is no "payroll" for self-employed. The difference would be filing schedule C
with your tax return
estimate tax payment
- I would put as additional cost ~$200-300 per year.
Please be aware that claiming deductions
will be different if you are an employee (with wages reported on W2 form) or a self-employed contractor (with compensation reported on form 1099MISC).
As an employee of the company - generally, you must use Form 2106
to figure the deduction
for employee business expenses
and attach it to your Form 1040
. The deductible
expenses are then taken on Form 1040, Schedule A
, as a miscellaneous itemized deduction
subject to the 2% of adjusted gross income
Here is form 2106 - www.irs.gov/pub/irs-pdf/f2106.pdf - instructions - www.irs.gov/pub/irs-pdf/i2106.pdf
The self-employed person deducts all qualified business expenses
without 2% limit - and only NET self-employment income will be subject of both - income and self-employment taxes.
So - if you have substantial deductions - it would be more advantageous to be paid via 1099MISC.
There are some benefits available for employees - depending on your situation - there might be subsidized health insurance, paid vacation and holidays, paid sick days, various fringe benefits
(educational assistance, life insurance, etc), retirement plan
, stock options, etc.
When compare employee vs self-employment options - we need to evaluate these benefits.
Let me know if you need any help this matter.