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I have been working a job for the past several months and receiving a personal check from my boss each week for pay. No taxes are being deducted. It's strictly hours worked X hourly rate = total pay. I'm in school so this job fits the bill.
I'm just curious what is involved regarding taxes because my boss has just now informed me he that I am a 1099 employee and will have to pay taxes on what I have earned.
I was under the impression I was being paid under the table. He does have a photocopy of my SS card and DL which he claims was to get me on his auto insurance policy, if that matters.
I'm assuming most of my expense (i.e., paycheck) to his company will be written off in the form of a 1099?
I never signed a 1099 or any form for that matter when I started so does any of this even apply?
Can he legally 1099 my position without prior consent or disclosure to me? What exactly is he submitting to the state, IRS, etc.?
Not only is it legal for him to 1099 you, it would be illegal for him NOT to, once you exceed a certain earnings threshold.
It is not an employer's responsibility to withold taxes with a 1099 employee. What he will do is submit a 1099 to the IRS and state showing the amount of wages paid to you - you will receive a duplicate copy of this 1099 at the end of the year. You would use this in place of a W-2 to file your taxes. Depending on your situation, you will most likely owe money.
My advice would be to save at least 10-15% of your money to pay this tax bill at the end of the year.
As EzPeterson indicated, it would be illegal for your boss to pay you under the table and not issue you a 1099. You can rest easy knowing that your boss is following the law.
I'm just curious what is involved regarding taxes because my boss has just now informed me he that I am a 1099 employee and will have to pay taxes on what I have earned.
There is no such thing as a 1099 employee. You are either an Employee who receives a W-2 at the end of the year, or you are an Independent Contractor who receives a 1099 at the end of the year. Misclassification of employees as Independent Contractors to avoid taxes and benefit requirements is a common practice by some. First you should read the Internal Revenue Service’s explanation and definition to see if you’re being misclassified as an Independent Contractor when you are actually an employee. Independent Contractor (Self-Employed) or Employee?
all money earned is tracked. You are able to deduct business expenses from income. car use, equipment, etc. then you come up with your actual earnings (less expenses). You owe IRS and state taxes on this income.
For IRS taxes, you owe the standard federal income taxes. Plus any state taxes if your state has an income tax. There are formulas/worksheets you fill out for determining the percentage to send. Usually from 10%-25% depending on your expected tax bracket. ADD this amount to the FICA tax below.
Plus you owe FICA (aka payroll tax aka social security tax). For FICA, you owe double what is normally taken from a standard employee's paycheck that is paid W2. Why? FICA has the employee's porition and the employer's portion. Typicall they each pay 50%. When you are a W2 employee, the employer's portion is paid to IRS directly by your employer and it is NOT deducted from your paycheck. When you are paid 1099, you owe that part also. I think both of them combine is approx 12% plus or minus. For 2012, the employee's portion was 2% lower but the employer's portion was not.
You fill out a 1040-SE (or is it ES)? There is a voucher form. This is how you send the taxes to the IRS. Jan 15 was the deadline for income earned the last quarter of 2012 unless you file your taxes by Jan 30 (then Jan 30 is your deadline). Money earned in quarters 1-3 of 2012 should have already had IRS taxes sent long ago.
As a cable contractor years ago I was a 1099. I'm not sure which state you are in or what you expect your yearly earnings to be, but putting 25% away for taxes would be my suggestion. I was making about 65k at the time and the 25% was almost exactly what I needed.
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