Re: 1099 (the history and the reality)

[Lin Laurie <linlaurie -at- EMAIL -dot- MSN -dot- COM>]

The reason they want you to have a tax ID number is to limit their
liability in not collecting taxes. You can thank Uncle Sam for tightening
up and causing this problem. I operate as a business and am a business
(seperate office, et. al.)  and still have some agencies that don't want to
work with me unless I contract as an employee.

The history is that in the late 1980's, Microsoft was judged by the IRS to
be liable for payroll taxes on contract employees because these employees
were judged to not be contractors (I was one of these people). Because of
the ruling by the IRS, Microsoft had to cough up a bunch of back taxes
(their share of employment taxes for what they considered to be contract
employees). So they instituted a policy of hiring only contractors through
agencies, or people with their own tax ID (because the government sees the
tax ID as a seperate identity and there is no chance of that person being
judged an employee). Other companies have followed Microsoft in this area
and will not hire people unless they can prove they are in business for
themselves, and not just trying to get some extra dollars and dodge the
taxes.

Basically, if you have a tax ID, the IRS will receive 1099 forms for you by
each company you work for, and can track your income this way. Every
company you work for will send you a form that you need to submit with your
tax ID number. Companies take you seriously as a business (for the most
part) if you have this paperwork. I actually print my tax ID number on my
invoices now so that I don't get the form to fill out at the end of the
year. It's a pain to fill out if you work for twenty or thirty clients
during the year. Agencies can pay you via 1099 and still bill their client
(the one you work for) without them even knowing your status.

There is a list of questions somewhere on the web about whether you qualify
as an independent contractor. They may be the the tech-l site or on the STC
site. If you don't qualify, then you will only be able to work as an
employee of a contract agency.

Contract agencies don't like to use 1099 people because they are afraid of
being found liable for your taxes should you not pay. If you file for
business status by getting a tax ID, the IRS is not likely to go after the
agency if you don't pay your taxes. It adds a layer of protection for them.
They have a due dilligence requirement with regard to tax collection, and
the tax ID puts you outside their domain. Does this make sense to you?

I hope I've helped. I've lived through all these changes, and seen why they
happened. Microsoft is still tangled in a legal mess over the contract
employees hired between 1987-1990 because once the IRS judged the employees
to be normal employees, the employees went after MS for back benefits. The
courts have upheld that we are regular employees, entitled to back
benefits, stock options, etc., and even MS has agreed, but because of this
ruling, there are new suits asking that all contract employees get
benefits, even though MS changed their hiring practices for contractors in
1990 and only dealth through agencies (and agencies offered benefits).
Anyway that little snag has held up the settlement of our part of this
case, and it looks like it will not be settled for another year. Other
companies are watching because once this suit is settled, other contact
employees could be suing like crazy over the same issues.

Good luck...

Lin Laurie
www.winpro-press.com