A 1099 Tax Form Automatically Makes a Contractor an Independent Contractor
Welcome back to the blog series on the 13 Myths of Independent Contractors. We created this series to help you navigate some of the potential legal minefields caused by the complex legal environment surrounding independent contractors. The content from this series comes from the whitepaper: Independent Contractor Myths versus Reality.
Myth: A company issuing a 1099 tax form to the contractor automatically makes them an independent contractor.
Issuing a 1099 (or the contractor receiving one from a client) does not automatically make the worker an independent contractor.
The reality is a worker may be an independent contractor if their work does not fall within a law’s definition of employment. Inversely, a worker might be an employee if their work falls within a law’s definition of employment.
1099 forms are intended to document and report different types of payments made by a business during the tax year, and they are sent to the payment recipient and the IRS. Receiving a 1099 tax form is simply the result of how the client company classified the worker for federal tax purposes, but the form itself does not mean the worker was correctly classified as an independent contractor for federal tax purposes.
Furthermore, receipt of a 1099 is irrelevant to determining whether the worker is an employee under federal statutes like the FLSA, FMLA, or MSPA.
Example: Taxes
Under federal tax laws, a worker is not an independent contractor for tax purposes just because they receive a 1099. What matters is whether the organization receiving the worker’s services has the right to control how they perform the work. To learn more about whether a worker is an independent contractor or employee for federal tax purposes, please visit the IRS’ website.
Example: Minimum Wage, Overtime, and other FLSA Protections
Receiving a 1099 does not make a worker an independent contractor under the FLSA. In fact, whether a worker receives a 1099 is irrelevant. Under the FLSA, a worker is an employee if their work indicates they are economically dependent on an employer. On the other hand, a worker is an independent contractor if, as a matter of economic reality, they are in business for themselves. It is important to remember that a worker can be an employee under the FLSA even if the IRS considers them an independent contractor. To learn more about whether a worker is an employee or independent contractor under the FLSA, please visit the DOL Misclassification Initiative page.
How can I learn The 13 Myths of Independent Contractors?
Sign up to receive the email alert when a new IC myth is published. Or, if you would prefer not to receive the email, you can check back in to the Resources section of our website weekly.
Share this article on LinkedIn
About ComplianceHR
ComplianceHR offers the only on-demand, intelligent suite of compliance applications. We are focused on helping companies address the ever-changing federal and state employment law requirements. Our solutions cover many common HR topics, such as employee handbooks, minimum wage, overtime, independent contracting, and more.
We provide employers of all industries, sizes, and locations with solutions that empower employers to handle complex compliance issues. Our solutions take less time, cost, and complexity than traditional methods. The Navigator Suite simplifies employment law compliance, allowing you to streamline your compliance workflow in only a few simple clicks.
Not a ComplianceHR client? You can sign up for a quick intro call and product demo with one of our compliance experts. After the demo, we offer a free trial to explore all of the Navigator Suite applications. See for yourself how they can transform your organization’s compliance practices. Sign up for a demo today.
