November 15, 2014

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Get Ready to Be a 1099er!

November 15, 2014

While the Bureau of Labor Statistics (BLS) reported a 5.8% unemployment rate for the month of October, which is a six year low, job scarcity remains a sobering reality for millions of people around the country.  This has been compounded by a growing trend that more and more companies are embracing, which is jettisoning the responsibility of paying employees’ taxes and requiring workers to become independent contractors to be hired for work.  This includes federal and state taxes, FICA (Federal Insurance Contributions Act), which is paid into the social security system and Medicare, and withholdings for health insurance and retirement.  If a person is hired by a company as an independent contractor, she/he is responsible for paying the aforementioned taxes and withholdings and, submitting Form 1099 to the Internal Revenue Service (IRS), which is the name from which “1099ers” is derived. This level of financial responsibility for employees is becoming more common in workplaces and is affecting people across profession, region of the country, level of education, licensure and certification.

 

As part of this responsibility, being a 1099er also requires paying (and many 1099ers don’t know about this one) the unemployment insurance tax.  This tax must be paid to your state of residence to be eligible for unemployment insurance benefits.  And, this is why those who work as 1099ers exclusively and are not aware of this tax responsibility are often left in shock when they assume that they will simply go back to collecting unemployment insurance benefits if they get laid off.  It can be a surreal moment as the unemployment insurance customer service representative (whom you waited to speak with for 45 minutes because of the callers ahead of you) very calmly but matter-of-factly tells you that there are no benefits from which to draw because YOU were not paying unemployment insurance taxes.  

 

NOW, YOU KNOW!

 

Independent contractors have been around for a long time but with so many more companies now embracing this method of hiring workers, there will be far more people who will be required to become 1099ers to get work than in previous generations. This represents an abrupt and, for many, unwelcomed change to the employment landscape in America. For some workers, managing the financial responsibilities of being an independent contractor is the ideal situation because of the benefits e.g., flexible work schedules, working from home, tax deductions:  (1) home office space; (2) equipment – computer, printer, fax, barber’s and hair stylist’s tools; (3) supplies – paper, toner cartridges; (4) car maintenance and gasoline; and (5) travel.  But, for other workers, it could represent a level of responsibility i.e., putting aside and paying the correct amounts for taxes and other withholdings rather than spending an entire paycheck, which simply is not desirable.  It seems, though, that 1099er status is here to stay and will be a position that more and more people will be required to adopt if they want to work. The question is, “Are you prepared to embrace this change?”

 

Dr. Rob

 

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www.economicstresshelp.com and its contents are the property of Dr. Robert M. Brown III.