form 1099??? good or bad???

Discussion in 'Experienced Truckers' Advice' started by truckerdave1970, Dec 8, 2009.

  1. bullhaulerswife

    bullhaulerswife Forum Leader/Admin Staff Member Administrator

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    Ok, Dave, here's a real scenario on this situation.
    We personally know a driver that did this, and it almost cost him his leg. So listen carefully.

    The driver was picking up a load of grain from a farmer. Climbed his ladder to check the load, before tarping and fell. Very deep bruise to his bone and tissue. He had no insurance, because he was a 1099. Truck owner didn't have any Work Comp insurance for him either, so he ignored the injury. It finally became septic, and they had to do surgery on the leg. The truck owner refused to pay the bill. He's stuck paying for that injury that would have otherwise been covered by workmans comp. Was out of work for 6 weeks to heal, and is now looking for another job, because the truck owner had to fill the seat on the truck.

    Not a pretty situation. Stick with companies that can and will pay you correctly and take the taxes out of your check. Because those are the ones that are carrying the Work Comp insurance, and you can never say never.
     
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  3. LavenderTrucker

    LavenderTrucker Medium Load Member

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    It actually isn't paying more taxes. For me, I ended up paying less in taxes when I was 1099 than W2/W4

    1099 you keep the money you earn through out the year and then pay your taxes.
    W4/W2 Your employer and gov. keep a portion of the money you earn through out the year and the either owe more money for your taxes, break even or get a refund if you over paid through out the year.
     
  4. 94nole

    94nole Light Load Member

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    Taxpayer scenarios are like opinions, every taxpayer has one and it is very likely different from all the others'.

    Your largest deduction as a 1099 driver was very likely the per diem deduction...a deduction to which the company driver is ALSO entitled. Now, granted, the company driver has to be able to itemize his deductions in order to enjoy the benefits of the PD deduction where the 1099 driver doesn't. But, if he is the typical driver and out 300+ days (or more) per year, he will likely be able to itemize his deductions based on PD alone.

    So, please be careful in painting tax scenarios with such a broad brush. Throw in a working spouse or 4 or 5 children/dependents and the scenario can be vastly different. What if he is single? There is way more to this than what we have discussed here.

    The most glaring issue, at least for me, is the pay rate at 32 cpm. I would say he'd need somewhere around 40 to make the decision a closer comparison and that is based simply on dollars and cents.

    But then again, most people make decisions based on just that...dollars and cents....heck, look at all the folks that get stuck with truck leases. They look only at the income side and not all the other variables. They should base decisions on dollars and SENSE!!!
     
  5. truckerdave1970

    truckerdave1970 On Probation

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    So what I am reading is unless the job pays more, let's say .40-.4cpm, it may be best to let this one go. Does that advice work even with 4 kids at home and a house payment that is mostly interest?
    Right now my tax liability, because of all my dependents, exemptions, interest payments, and standard road deductions, is extremly small. I think last year we grossed $57k and only paid $2k in taxes after all the writeoffs. (BTW, H&R Block does my taxes every year)
     
  6. LavenderTrucker

    LavenderTrucker Medium Load Member

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    If anyone contracts as a 1099 they have to realize that they are responsible their taxes and insuraance.
    Because a company isn't doing it for you is no reason not to take care of it yourself.

    So when considering hiring on as a 1099, be sure to factor all of that into what and how you will b compensated.
     
  7. 94nole

    94nole Light Load Member

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    On the surface, I would say yes, let it go. Primarily because of all of the other items that have been mentioned...health insurance, worker's (not workMAN's) comp, etc. Those still say workMAN's comp are either showing their age or simply don't know that it was changed years ago.

    Let's do the math...

    Let's say that you drive 120,000 miles at 32cpm...that is a gross of $38,400. Let's say that you did that by being out 300 days, thus entitling you to 300 x 59 x 80% or $14,160 in per diem deductions and that you had no other expenses (just to make it simple).

    Your net self employment income is (38400-14160) or $24,240 x 92.35% x 15.3%. Thus, your self employment tax is $3,425

    Then you have to run your $24,240 plus any other household income through the regular tax schedule.

    I will assume that with the 4 kids that there is also a wife and thus 6 personal and dependency exemptions bringing that total alone to $21,900 ($3650 x 6). So, when added to your standard deduction of $11,400 (assuming married filing joint return), you would reduce your taxable income to zero.

    So, you wouldn't have any regular tax to pay, just the self-employment tax of $3425. So, you would net $38400 less the $3425 or $35,000ish.

    This sounds good at first but now you have to find your own health, disability, life, insurance, etc. Most employers offer at least some minimum amount of life insurance at no cost to the employee and they subsidize the cost of the other items versus what you would have to pay on your own.

    I am also, for illustration purposes here, not calculating earned income credit or any other refundable tax credits you may be entitled to.

    Now, let's assume that same $38,400 is now paid to you as an employee. Assuming no federal income tax withholding ('cause you would just get it all back at tax time), your employer would withhold, 7.65% (FICA/Medicare) of the gross amount or $2,940, netting you about $35460. Using the same $21,900 in personal & dependency exemptions and your itemized deductions of $14,160, you'd again not pay any regular income tax. Although you have to reduce the per diem by 2% of your Adjusted Gross Income, I figured you'd have enough other deductions to make up the difference...again for simplicity sake.

    So, dollar for dollar, under these scenarios, it's really a push just based purely on income and taxes...however, when you overlay the other items discussed, the benefits of being an employee (depending on the benefits offered) may far outweigh the self-employed route.
     
    jtrnr1951 and RACEFAN Thank this.
  8. Brickman

    Brickman Trucker Forum STAFF Staff Member

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    Along with no workers comp and unenjoyment should you get laid off this set up is not legal under the IRS definition of employee employer relationship.


    1099 is for self employed folks. Not some one working for a company using their equipment.
     
    jtrnr1951 Thanks this.
  9. jtrnr1951

    jtrnr1951 Road Train Member

    Some states have a heavy fine for not carrying workmans comp on yourself !! Not to mention the expense of it. Plus the legality of it all........Besy of Luck Dave, you just jumped out of the frying pan, be careful...........
     
  10. 94nole

    94nole Light Load Member

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    while I totally agree with you Brickman, there is little the IRS can or will do to the unfortunate party on the employee side of the deal. Afterall, he's paying the SE tax on his earnings.

    It is the employer that stands to lose in this arrangement if examined by the "gubment".
     
  11. Roadmedic

    Roadmedic Road Train Member

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    This is a gray area.

    IRS has in the past, contacted such employers and forced them to treat them as employees in the back years. It is up to the people being paid wrongly in most cases to report it.

    However, they usually risk losing their jobs. Mostly because of the tax charges against the employer who then closes up shop. Sometimes it is because the employer goes after the employee and fires them.

    The IRS unfortunately is not active in looking at these situations. They clearly violate the rules, but they get away with it.
     
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