There is no such thing as a "1099 employee."

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Business owners will often say that they hired someone as a "1099 employee." What they actually mean is that the business came to an arrangement with a worker that deems him to be an independent contractor, and as a result, it doesn't have to follow any of the laws involved in hiring an employee. This includes not having to withhold any amounts for taxes, not having to pay the employer's portion of social security and Medicare taxes, and not having to pay any premiums for workers compensation or unemployment insurance. It becomes the worker's responsibility to pay the employer's portion of social security and Medicare taxes through the self employment tax. The worker must also perform their own withholding through quarterly payments to the IRS. From the employer's perspective, this seems to be a great arrangement. They avoid administrative and tax expenses. The only problem is that it is often illegal.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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