Key Points
A Reddit poster was upset that his job classified him as an independent contractor.
Since he had control over when and how he worked, he was likely classified correctly.
Those working as independent contractors need to understand their tax obligations.
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A Reddit user posted recently because he is upset that the church he worked for classified him as an independent contractor. Because he did not have taxes withheld from his paychecks as a result, he intended up owing $100 in taxes even though he only made $1,400 total over the course of the year. He had two other jobs that he would have received a tax refund from, and he’s upset that this job resulted in him owing money instead.
So, was the Redditor a contractor, and should he be upset by the fact that he owed money instead of getting a refund?
Independent contractor or employee?
It’s not unreasonable for the Reddit poster to wonder whether he should have been classified as an employee or as an independent contractor. This distinction is an important one, and some companies do misclassify their workers as independent contractors to avoid covering FICA taxes and paying employee benefits.
The IRS guidelines make clear that a company can’t just declare someone an independent contractor if they really are an employee. There are a few key things the IRS looks for to determine if someone is correctly classified, including:
Whether the company has the right to control when, where, and how the worker does their job.
Whether the business aspects of the job are controlled by the contractor or the company. For example, who provides tools and supplies, and are expenses reimbursed?
The type of relationship, including whether there are written contracts and whether the work is a key part of the business.
In this case, the Redditor was hired to manage the church’s social media. He reports the hours he worked at the end of the month. The church didn’t have control over when or how he did the work. Many other Redditors chimed in to say it is very likely that he was correctly classified based on the nature of the work he did.
Independent contractors need to understand their tax obligations
Many Redditors pointed out to the original poster (OP) that there were plenty of clues that he was being treated as an independent contractor. First, he filled out a W-9 so he could be sent a tax form as a contractor, rather than a W-4 for employees, which helps companies determine how much tax to withhold from a worker’s paycheck. Second, he had no taxes withheld from his check.
While standard employees have their taxes taken out of their paycheck, independent contractors are responsible for covering their own tax liability. In fact, many independent contractors actually need to file quarterly estimated taxes throughout the year to make sure they are paying taxes as they earn their wages. Independent contractors need to know this so they don’t end up owing penalties and interest.
In the case of the OP, he was upset by the surprise tax bill, but as other commenters to the thread point out, this was just the taxes he owed on his wages. He was simply paying them at the time taxes were due and not up front. Nothing was messed up as the OP thought, and, despite his upset that he wasn’t getting a refund, tax refunds are not guaranteed and actually aren’t a great thing since they mean the IRS had an interest-free loan from your overpaid taxes before finally giving you back your own money.
The OP here is still young, and this was a small job, so it’s a good learning experience. When he takes jobs in the future, he will know what to ask and he’ll better understand his tax obligations. For those who are confused about what their obligations are as independent contractors, it can also be a good idea to talk with a financial advisor, as there may be ways that self-employed individuals can lower the taxes due through strategic planning.
The post My Church Internship Gave Me a 1099 Instead of a W2 – Am I Really a Contractor? appeared first on 24/7 Wall St..
