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1099 Instead of W-2

What does this mean?
If you received a 1099-MISC instead of a W-2, your company considers you to be an independent contractor, and not an employee. You are in business for yourself, and the company you thought was your employer, is actually your client.

Why would they do this?
A company with employees must not only pay their employees, but they must also pay for payroll tax, social security tax, Medicare tax, benefits, insurance, etc. You can see how this would become expensive very quickly. However, if a company hires an independent contractor, they only have to pay the contractor. 

Who does this happen to?
This type of treatment is usually seen in builders and subcontractors. One Builder with ten employees who do the basic work, and ten more subcontractors who specialize in specific areas, like a granite installer, cabinet maker, roofer, plumber, electrician. At the end of each specialized piece of the construction, the respective subcontractor is finished, paid, and no longer needs to be involved with whatever comes next.
More and more we are seeing sales people becoming independents. Originally seen with people who do direct sales and marketing, but these fields are becoming broader as large companies start to see the advantages of having hundreds of independent contractors, instead of employees. 

When do I find out if I get a 1099 or a W-2?
Unfortunately, many people find out when they get their year end statement and actually receive a 1099-MISC. But when starting employment with a new company you fill out a W-4, which is a statement of how much of your money you want to be withheld from your paycheck for taxes. If you filled out a W-4 you will likely get a W-2, you are usually an employee. If, however, you were given a W-9 to fill out, then you are an independent. There are instances when a company is bought out by another company and the employees are then turned into independents without their knowledge.

How do I avoid owing lots of taxes?
If you got a 1099-MISC, you are a business, and that means you get Business Deductions!