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Author: lemongirl One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 49487  
Subject: 1099 or W-2 employee? Date: 3/13/2003 3:30 PM
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I have been hired to work part-time for a mortgage company. I already have a full-time job, so this job would be part-time in the evenings and done out of my home. The job would be cold calling people who have recently been turned down by a bank or other financial institution for a mortgage or refinance to see if they are still interested in getting financing. If they are interested I will fill out a pre-qualification sheet on them over the phone and submit it to the main office, who will then handle the rest. If someone that I do a pre-qual on qualifies for and closes on a loan I get paid a percentage. My problem is I have been told that I am a 1099 employee, but I have also been told I am a W-2 employee. I have not filled out a W-4 as yet, which would need to be done in order to be a W-2 employee, correct? I have never worked as a 1099 employee, is there specific paperwork for 1099 employees? What are the major differences between W-2 vs. 1099? When I asked about my expenses (long distance phone calls mostly) I was told that I could "write off anything I wanted" on my taxes, pretty vague. Should these expenses be covered by my employer or do I write them off on my taxes? If I claim them on my taxes, what exactly can I write off? Does my W-2/1099 status make a difference in handling my expenses?

This is a very small company with no HR person to answer these questions. Just want to get everything taken care of before I start making calls. Thanks in advance for your help.

Lemongirl
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Author: WMM2 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28617 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/13/2003 3:48 PM
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The 1099 refers to the statement that you will get at the end of the year, telling how much you were paid. You have to pay income taxes on the amount, just like any other job.

Some of the things you need to know.

They won't withhold income taxes, so you will have to file quarterly estimates (form 1040 ES) with the IRS. If you have state and local taxes, they too may require quarterly estimated payments.

They don't pay or withhold social security taxes. You have to pay both your portion and the part that an employer would pay in a w-2 job. (like your day job).

You can deduct a lot of stuff that is required for the job. (Like the long distance phone calls. The basic phone service doesn't get written off, according to my tax guy)

There's a lot of stuff you need to keep records on if you want to deduct it. I suggest you run this by an accountant or tax person.

===================================

Now having said all that, are you sure you want this job? Look at it from a customer's point of view. If you got a long distance cold call, asking all sorts of personal questions (like you would have on a credit application) would you give out that information? I know I wouldn't. I suspect you might end up spending a lot of time and money making long distance calls with little or nothing to show for it.

Good luck with whatever you do.

Bill

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Author: irasmilo Big gold star, 5000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28618 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/13/2003 3:50 PM
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You should ask this question on the Tax Strategies board. That's where the tax experts hang out.

Ira

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Author: karenlj Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28619 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/13/2003 3:51 PM
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I have been hired to work part-time for a mortgage company. ...If someone that I do a pre-qual on qualifies for and closes on a loan I get paid a percentage. ...I have been told that I am a 1099 employee, but I have also been told I am a W-2 employee. ...I was told that I could "write off anything I wanted" on my taxes, pretty vague. ...

This is a very small company with no HR person to answer these questions. Just want to get everything taken care of before I start making calls. Thanks in advance for your help.

Lemongirl


You need to find someone at the company to answer these questions ASAP before you begin work. It sounds to me as though you could end up working many hours and spending your own money on long distance calls without ever getting a dime from this company. This does not sound like a good deal to me.

Karen



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Author: 38Packard Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28621 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/13/2003 3:56 PM
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Hey Lemongirl,

As a W-2 employee, the employer will be responsible for taking taxes out of your paycheck and paying half of the 15.?% FICA tax. You will be classified as "employee" and they would also be responsible for any unemployment taxes levied on the employer as well as paying for Workman's Comp on your salary.

As a "1099" employee, you won't be an employee at all. You'll be a sub-contractor. The commissions you earn will be reported to you on a 1099 at the end of the year and you will be responsible for self-employment taxes (the full 15.?% FICA). You will not be covered with any benefits - no workman's comp or unemplyment - but you are covered by your primary employer.

As far as LD phone calls are concerned, and other office expenses, you can write them off on your "Schedule C" at tax time, and those expenses will be used to reduce your 1099 income. I guess I would ask what would happen if you made $1000 in LD calls and got no takers? You're out of $1000 in LD charges - but that's the risk you take in being in business for yourself!!

Make sure that the commission percent is a good one. You need to make this relatively "risky" adventure pay off for you. Remember to calculate the taxes you'll have to pay and other expenses you'll have to incur.

Good Luck!
'38Packard


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Author: Benevolent Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28622 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/13/2003 4:12 PM
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You got some good advice about taxes:

Regardless of the mixed signals you got from the company, it sounds like you're a 1099 employee. Without a W-4, you are not a W-2 employee, because the company has no way to know what to take out of your check.

There's nothing wrong with 1099 employment, as long as you're aware of your responsibilities. Yes, you'll probably have to file taxes quarterly. It's not a difficult task, though it may sound that way now. But don't be put off by people who say the deal doesn't sound good. Or, alternatively, you could estimate what you'll make in the free-lance work and have extra withholding taken out of your main paycheck. I used to do this.

As is the case with most sales jobs, the deal is probably good if you're good at the selling, and it's lousy if you're not. If you're on straight commission with no base pay, you'd better be pretty good.

One advantage of 1099 employment is that you can deduct your expenses, even if they're small. Expenses are deducted from your income on the Schedule C even if they aren't as much as your standard deduction, and you can still take your standard deduction.

My advice: If you take the job, don't waste a lot of time "easing in." Jump right into the work and put in several full nights on the phones. It won't take you long to learn whether 1) you like the job, 2) you have a talent for the job, and 3) whether the amount of money you'll make is worth the time you spend on it. When you consider the value of your time, don't forget that you'll have to document your expenses for taxes and allocate some extra time for doing your taxes. Again, it's not that difficult, but still deserves consideration.

If you aren't good at the telesales, or the people are reluctant to talk, or you don't take rejection well, or the commissions wind up being $20 for four hours' work, stop doing it.

That's another benefit of subcontracting like this. If you don't want the job, you're not obligated to anyone.

Benevolent


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Author: lemongirl One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28623 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/13/2003 4:26 PM
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Now having said all that, are you sure you want this job? Look at it from a customer's point of view. If you got a long distance cold call, asking all sorts of personal questions (like you would have on a credit application) would you give out that information? I know I wouldn't. I suspect you might end up spending a lot of time and money making long distance calls with little or nothing to show for it.

Well, I'm in Maine and most in state calls are long distance, but people still consider anything based in Maine to be a "local" business, but I agree that I would not give that kind of info. out on the phone. However I made some training calls and was shocked that most people were willing to answer my questions and give their social security numbers. One guy even offered me his SS number as soon as I finished introducing myself!

Lemongirl

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Author: lemongirl One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28624 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/13/2003 4:36 PM
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Thanks for the replies, makes things a little clearer. One more question, if I'm a W-2 employee can I still write off all my expenses come tax time? (I'm a bit confused as someone told me that if I'm a W-2 employee than my employer should be reimbursing my expenses and I can't write them off.)

Lemongirl

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Author: LittleFroggy Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28629 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/13/2003 8:58 PM
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If you're an employee, you can deduct your unreimbursed business expenses in excess of 2% of your AGI as a miscellaneous itemized deduction on Schedule A. See form 2106, Employee Business Expenses.

Where are you in Maine? I'm in the Portland area.

LF
excited to find another Maine Fool!

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Author: TheHeadhunter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28697 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/19/2003 1:00 PM
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What I love about this board is all the smart, thoughtful advice shared by folks here. Please listen to what others are saying. Mainly, don't do anything until you clearly understand your options and what they mean. It seems you're still kind of confused about your status. Contact your state labor office and let them explain it to you. That's what they're there for.

Any employer who cannot clearly explain your employment status needs to be looked at CAREFULLY.

No comment about this kind of job. It's up to you to pursue something like this. But BE CAREFUL. There are lots of rackets out there.

Nick Corcodilos
Ask The Headhunter




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Author: lemongirl One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28710 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/19/2003 2:52 PM
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If you're an employee, you can deduct your unreimbursed business expenses in excess of 2% of your AGI as a miscellaneous itemized deduction on Schedule A. See form 2106, Employee Business Expenses.

Where are you in Maine? I'm in the Portland area.

LF
excited to find another Maine Fool!


Hello Fellow Mainer,

Currently I am just outside of Bangor, but I have recently applied for a job in the Kennebunk area, so I may be moving.

As far as the deduction goes, I guess I would rather be a 1099 employee and be able to write off all my expenses since they have said nothing about reimbursing me for any, which means that if I'm a W-2 employee I would have to pay 2% of my AGI in expenses out of pocket. Doesn't sound too good to me. Its a shame since mortgage rates keep dropping and its a great time to refi.

Lemongirl

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Author: lemongirl One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28711 of 49487
Subject: Re: 1099 or W-2 employee? Date: 3/19/2003 2:55 PM
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What I love about this board is all the smart, thoughtful advice shared by folks here. Please listen to what others are saying. Mainly, don't do anything until you clearly understand your options and what they mean. It seems you're still kind of confused about your status. Contact your state labor office and let them explain it to you. That's what they're there for.

Any employer who cannot clearly explain your employment status needs to be looked at CAREFULLY.

No comment about this kind of job. It's up to you to pursue something like this. But BE CAREFUL. There are lots of rackets out there.

Nick Corcodilos
Ask The Headhunter


I still haven't gotten a straight answer about my status. I even requested a W-4 form be mailed to me, got no response. Looks like I will be passing on this opportunity, more trouble than its worth. Thanks to everyone for their advice!

Lemongirl

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