1099 versus W2 method for employment

Subject: 1099 versus W2 method for employment
From: Michael Uhl <uhl -at- VISLAB -dot- EPA -dot- GOV>
Date: Wed, 3 May 1995 09:01:15 -0400

David Demyan warned against working as a technical writer in which clients
issue a 1099 to you and the IRS at the end of the year. He correctly pointed
out that contractors must satisfy a list of 20 criteria.

I found the solution to this problem in creating a corporation and employing
myself. I did my own wothholding and gave myself a W2 at in January. It's a
lot of paperwork, but because my wife worked with me and we had two other
employees, it was well worth it. In that case, we were are own agency and
the IRS' 20 questions were irrelevant.

BTW, large companies who indulge in hiring contractors via 1099 rather than
through agencies or as direct employees risk huge amounts of money if *any*
of those so-called independents fail to meet the IRS' criteria. The reason
is the three-day rule. That is, employers who have a payroll over a certain
amount must deposit their employees' withholding within three days of the date
the employees were paid. Every day after that in which they fail to deposit
the withholding with the U.S. Treasury (via qualified commercial bank), they
incur penalties and interest, which compound. Imagine if the IRS concluded that,
say Electronic Data Systems, should have but did not withhold taxes on a
year's worth of a person's wages. We're talking exponential here. The contractor
will taxes on any expenses they deducted but were not entitled to as an

You can be sure that I was always prompt in getting my money to the bank on time
and put the receipt in a safe place.

-Mike Uhl (uhl -at- vislab -dot- epa -dot- gov)
Lead Technical Writer
Scientific Visualization Center/EPA
Research Triangle Park, NC

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