Beware of the 1099 scam
Many of the small fleet owners may try to talk a new driver into working for a 1099 instead of a W2. If you are offered this deal, run away as fast as you can!! By law, you the driver are responsible for not only your portion of withholding, but also the employers contribution. Not only is this system bad for the driver, it is also illegal.
Many unscrupulous fleet owners will try to convince a potential driver of the advantages of this system, but in reality the owner of the truck is the one who comes out on top. Sure, they may offer you a decked out long hood, and let you run hot, but the risks aren't worth it. Many will give the driver a cut rate mileage or percentage and tell the driver how not having to pay withholding offsets the low pay. They will tell you that you get to keep all your money every week, instead of giving it to the government. This is a lie. The driver is is responsible for filing quarterly taxes and most blow it off, then when tax time comes they are in deep crap with the IRS.
Sure, the helpful employer might tell a driver how to scam the system and not pay any taxes, but in the end, the driver is usually the one that ends up owing the IRS back taxes, interest and penalties, while the owner skates.
Good post, PTD. I would also add to it the "per diem" scam. Many employers are using "per diem" to avoid paying the taxes they are legally required to pay. They may pay you far more per diem pay than what you can legally claim on your taxes (assuming you even have enough to itemize in the first place), and you could be left footing the bill for their dishonesty. If given the choice, usually not taking the per diem is the best decision.
Working for a 1099 makes the recipient liable for EVERYTHING and the issuer liable for NOTHING.
If you're gonna work for a 1099 just keep that in mind.
I would NOT work for a 1099. Never have, never will.
I agree with you other drivers, stay away from the 1099. I as a so called non-employee a
couple of years ago learned the hard way.
If you read below, here is how the IRS will define whether an individual is an employee or
non-employee. This is from their website.
Even if you sign a contract with a prespective employer and it is stating that you are an
Independent Contractor, it may not hold up on thier part.
A couple of key items are; If your employer provides you with the tools to perform the
work ie... a tractor/trailer.
Directs you where to go to pick up your loads and where to deliver your loads.
Directs you where to purchase supplies ie... fuel and such or where to get specific
repairs done on their vehicle.
The IRS says:
Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.
The behavioral control factors fall into the categories of:
Type of instructions given
Degree of instruction
Types of Instructions Given
An employee is generally subject to the business’s instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work.
When and where to do the work.
What tools or equipment to use.
What workers to hire or to assist with the work.
Where to purchase supplies and services.
What work must be performed by a specified individual.
What order or sequence to follow when performing the work.
DEGREE OF INSTRUCTION
Degree of Instruction means that the more detailed the instructions, the more control the business exercises over the worker. More detailed instructions indicate that the worker is an employee. Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor.
Note: The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right.
If an evaluation system measures the details of how the work is performed, then these factors would point to an employee.
If the evaluation system measures just the end result, then this can point to either an independent contractor or an employee.
If the business provides the worker with training on how to do the job, this indicates that the business wants the job done in a particular way. This is strong evidence that the worker is an employee. Periodic or on-going training about procedures and methods is even stronger evidence of an employer-employee relationship. However, independent contractors ordinarily use their own methods.
If you own your own truck and lease it to a company you should do OK with getting paid on a 1099. But, you will need an accountant and you will need to put away 20-30% of ALL your income and pay your taxes every 3 months.
The IRS has a 20 question test to see if you can legally get paid on a 1099. Sorry but I am just too lazy to find it for you right now. Basically, if you are driving a company truck it would be illegal for you to be paid on anything but a W-2. The IRS is starting to get tough on this because it is costing billions per year in unpaid taxes.
I too once made the mistake of working for someone and being paid on a 1099. In the end though he ended up getting the worse end of the deal. Last I heard he is serving time in jail for tax issues, lost his entire fleet of trucks, and owes a few hundred thousand in back taxes, fines and interest.
Finding the right trucking company is like finding the right person to marry. I really comes down to finding one whose BS you can put up with and who can put up wih yours.
I was well aware of what I was getting into when I signed onto the company I drive for right now.
The man's essentially a small fleet owner(3 trucks) who leased all of his trucks to a small carrier.
I've set aside the necessary money to cover taxes and already utilize the same tax-person I've been seeing for the past, three years.
I've got four months in right now, but I'm only staying two more.
I already feel the burden of this extra task and I'm only with this guy to get the needed experience to cover that accident I had.
If no dice after the last two of these six months are up, I'll just go back to security, work towards an RN degree, and keep my CDL active for when things, economy-wise, start to look a little better.
The 1099 isn't in and of itself bad. It's what you get when you are a contractor- not an employee. That's the point these guys are getting at. If you're an employee, you get a W-2. If you're a contractor (ie independent contractor, lease purchase operator, owner op), you get a 1099.
If you're driving their truck, you should insist on being an employee.
I never understand guys who drive a truck for an o/o instead of just being company drivers. Anyone I've ever talked to who drives for an o/o (meaning they are driving a truck someone else owns that is leased to a carrier) who actually had a good deal. I've always found that they make way less than the company drivers for whatever company the truck is leased to. Big surprise there.
Anyway, that's good advice to make sure you get paid on a W2 unless you're an actual contractor.
I might be right, I might be wrong...but here's my .02
I'm not sure how paying someone 1099 is illegal. I got paid 1099 for an Atlas van Lines agent back in college. Sure, I paid my tax on it, but nobody went to jail.
Now, granted, I wasn't classified as an operating contractor, but rather a contractor supplying labor. In HHG, if one of my casual laborers makes $600 or more, I'm required to sissue them a 1099 at the end of the year, and they are legally bound to pay tax on it.
This is where I wonder how it is illegal- if an o/o issues a 1099. If he writes it off as employee wages, then the tax burden is shifted from him/her to the employee. No tax evasion going on here, unless the employee chooses to dodge the system. Babysitters, pet sitters, and odd jobs type people often get paid in cash, and subsequently a 1099. They don't provide equipment (in most cases) and are a sole proprietership.
I do understand the black and white of classifying someone as a "contractor" though, especially in trucking.
Mud, sweat, and gears
i get a 1099. i get paid very well. i write off ALOT on my taxes, therefore i pay very little taxes. i do alot better this way than i did as a true company driver on a w'2. but everyone is different, and opinions vary. what works for me may not work for everyone else.
Keep on rockin'
Truth beith spoken by ye. The extra 7.65% of the Employer Share of Social Security and Medicare Tax is the automatic hair-cut from W-2 to 1099 if the money stays the same.
Originally Posted by Part Time Dweller
A big item missed when demoted from W-2 to 1099, which you did not mention, is that the 1099'er likely also does not have 'Workers Compensation' to cover him or her with an injury claim while performing a task on the job.
The last quote I was able to obtain for Workers Compensation is about 16%, or sixteen-cents on ever dollar grossed. Hence, we are at around 23.65% cut in benefits from W-2 to 1099 if the money stays the same. We have not even discussed unemployment or vacation benefits yet.
I am attach a spreadsheet to that shows the erosion of the pay rate from W-2 as the driver gets subjected to 1099, then 1099 & WC not provided. The rates are calculated to the nearest hundredth of a penny. If you are getting 1099 & WC'ed, then follow the row back to the left to see what you should be getting paid to make up for the pay rate difference for the benefits that you are not receiving.
I cannot get my spreadsheet to upload. I will try to get a copy/paste of the numbers.
W-2 1099 1099 & WC
60 55.41 45.81
59 54.49 45.05
58 53.56 44.28
57 52.64 43.52
56 51.72 42.76
55 50.79 41.99
54 49.87 41.23
53 48.95 40.47
52 48.02 39.70
51 47.10 38.94
50 46.18 38.18
49 45.25 37.41
48 44.33 36.65
47 43.40 35.88
46 42.48 35.12
45 41.56 34.36
44 40.63 33.59
43 39.71 32.83
42 38.79 32.07
41 37.86 31.30
40 36.94 30.54
39 36.02 29.78
38 35.09 29.01
37 34.17 28.25
36 33.25 27.49
35 32.32 26.72
34 31.40 25.96
33 30.48 25.20
32 29.55 24.43
31 28.63 23.67
30 27.71 22.91
You can see that if you are getting paid 40 cent-mile W-2 with WC coverage, and then you company starts to 1099 you, you immediately take just short of a dime per mile pay cut. I am getting 38 cents per mile 1099 (yeah, I know, but this is just the best I can do right now), so I would really need a bump to 50 cents per mile to get this 38 cents 1099 to equal 38 cents W-2 with WC coverage.
Last edited by Always Stuggling; 04-09-2013 at 10:27 AM.
Last edited by Always Stuggling; 04-09-2013 at 10:17 AM.
Reason: Duplicate Posting
I have my own authority and my drivers are all w2, not 1099. I am debating on having 1-2 trucks lease onto me which will be 1099. Any of my companies will always be w2 though.
I have worked on both a W2 and 1099. Personally, I prefer a 1099. But, I am a responsible individual and there can be some tax benefits to being paid on a 1099. If you are paid on a 1099, you may or may not have workers comp available. In any case, you can always buy an occupational accident policy. OOIDA sells on for about $140/month. It really isn't as big a deal as some have posted. Everyone needs to decide whether they want to work on a 1099 or a W2. All carrier's also need to decide how they want to pay drivers. With all the new regulations and Obamacare, you will likely find more carriers paying on a 1099. I would also expect to see more carriers offer a lease program in an effort to reduce their tax bite. Offering a lease purchase makes it easier to meet the definition of an independent contractor with the IRS.
The IRS could care less as long as they get their tax money. The problem with a 1099 is that the worker may not always pay their taxes and when the tax evader is caught tries to lay blame on the carrier or company. You will never have a problem paying on a 1099 unless a contractor who is EVADING his taxes, turns in the company in an effort to evade paying his taxes. Someone who does that is really scum. They take the extra money that they receive and instead of paying their taxes, they blow the money. Everyone should be responsible for their own taxes. The reason that congress originally set up the rules for employers to deduct taxes from workers pay is that they thought that most people would not pay their income taxes unless forced to do so. Most people who are paid on a W2 receive a refund on their taxes. That means that they paid the IRS too much tax. Essentially, when you receive a refund you have given the government a interest free loan. You could have invested that extra money or put it in a savings account. It is unfortunate that there are so many people in this country who avoid personal responsibility. If you are not a responsible person, then continue working under a W2 and let others control your money.
Originally Posted by Mackman
Originally Posted by GMAN
This is simply incorrect regarding the IRS. They really do have a definition of what hoops one must jump through to be a 1099 vs. an employee on a w-2. Most people, emphasis on most, who think they are independent contractors don't really qualify under the IRS's definition.
From the IRS's website:
You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.
Link to site: http://www.irs.gov/Businesses/Small-...ractor-Defined
"In trucking, 2 wrongs don't make a right but 3 lefts do!!"
1099 an employee fits right in with a LP. The employer that uses a 1099 extolls the virtue of it,as they avoid any of the associated payroll taxes. A cheap occupational health policy instead of comp,no chance of UC if you're fired without cause,the employee paying both sides of fica and medicare. And of course they don't offer a higher rate of pay because of that.
Originally Posted by Scoe
I understand that the IRS has a definition of what constitutes an independent contractor and that some may not meet that definition. However, unless the contractor fails to pay his taxes, it should not be an issue with the IRS. There has been some discussion by the IRS to eliminate the independent contractor classification, even with owner operators. I am not sure how that would work, but it might prove to be interesting.