Worker Misclassification

I Received a 1099-NEC But I'm an Employee

The Cost to You

7.65% extra taxes + lost benefits

When employers misclassify employees as contractors, YOU pay the employer's share of Social Security and Medicare taxes. Plus, you lose out on benefits, unemployment insurance, and worker protections.

If you received a 1099-NEC but work like an employee—set hours, employer's office, their equipment, their direction—you may be misclassified. Here's what to do.

Employee vs. Independent Contractor: The Test

The IRS and labor departments use these factors to determine if you're an employee or contractor:

Factor	Employee (W-2)	Contractor (1099)
Work Schedule	Set by employer (9-5, specific hours)	You control when you work
How Work is Done	Employer directs methods and processes	You decide how to complete tasks
Tools/Equipment	Employer provides tools, computer, etc.	You provide your own equipment
Training	Employer provides training	You're hired for existing expertise
Payment	Regular paycheck, hourly/salary	By project, invoice, or milestone
Benefits	May receive health, 401k, PTO	No employer-provided benefits
Work Location	Employer's office (typically)	Work from anywhere
Exclusivity	Work only for this employer	Can work for multiple clients

Key question: If most factors in the "Employee" column describe your work, you may be misclassified—even if you signed a contract calling you an "independent contractor."

Why Employers Misclassify Workers

Misclassification often isn't accidental—it saves employers money:

Save 7.65% FICA taxes

Employers pay half of Social Security/Medicare for employees—not for contractors

Avoid benefits costs

Health insurance, 401k, PTO add 20-30% to labor costs

Skip payroll taxes

No federal/state unemployment taxes for contractors

Reduce liability

Fewer workers' compensation and liability concerns

Avoid labor law compliance

Minimum wage, overtime, meal breaks don't apply to contractors

The Math: What Misclassification Costs You

Your income$50,000

As employee: Your FICA (7.65%)$3,825

As contractor: Self-employment tax (15.3%)$7,650

Extra you pay due to misclassification$3,825

Your Options: What You Can Do

Accept the Classification

Pay self-employment taxes and move on

Pros:

Simpler, no confrontation
May have flexibility benefits

Cons:

Pay extra 7.65% in taxes
No benefits or protections
No unemployment if work ends

File SS-8 with IRS

Ask IRS to determine your proper classification

Pros:

Free, formal determination
IRS contacts employer
Can result in refund

Cons:

Takes 6+ months
Employer will know
May strain relationship

File Form 8919

Report wages as employee on your tax return

Pros:

Pay only employee portion of FICA
Don't need IRS determination first

Cons:

May trigger audit
Need SS-8 or other evidence
Employer may dispute

File Complaint with Labor Dept

Report to your state's labor department

Pros:

Can recover back wages, benefits
Anonymous in some states

Cons:

Employer may retaliate
Process takes time
Varies by state

How to File Form SS-8

Step 1: Download Form SS-8

Get it from IRS.gov. It's called "Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding."

Step 2: Describe Your Working Relationship

Answer questions about who controls your work, schedule, tools, and how you're paid. Be thorough and honest—this is your evidence.

Step 3: Submit and Wait

Mail to the IRS. They'll contact your employer for their side. Process takes 6+ months. You'll receive a determination letter.

Frequently Asked Questions

How do I know if I'm misclassified as an independent contractor?

Key signs of misclassification: Your employer controls your schedule, how you do your work, and where you work. You use their equipment, receive training, work only for them, and can't work for competitors. If you look and act like an employee but receive a 1099, you may be misclassified.

What's the financial impact of being misclassified?

You pay an extra 7.65% in self-employment taxes (the employer's share of FICA that they should pay). On $50,000 income, that's $3,825 in extra taxes. Plus, you miss out on benefits like health insurance, retirement matching, unemployment insurance, and workers' comp.

What is Form SS-8?

Form SS-8 (Determination of Worker Status) is an IRS form you file to request an official determination of whether you're an employee or contractor. The IRS reviews the facts and issues a formal ruling. It's free but takes 6+ months. The employer is notified and must respond.

What is Form 8919?

Form 8919 (Uncollected Social Security and Medicare Tax on Wages) lets you report your income as employee wages on your tax return, even if you received a 1099. You pay only the employee portion of FICA (7.65%) instead of the full self-employment tax (15.3%).

Can I be fired for reporting misclassification?

Retaliation for reporting labor violations is illegal. However, proving retaliation can be difficult, and legal action takes time. If you're concerned, consider filing anonymously with your state labor department first, or wait until you've found new employment.

What if I agreed to be an independent contractor?

Your agreement doesn't determine your status—the actual working relationship does. Even if you signed a contract saying you're an independent contractor, if the work relationship looks like employment, you may still be misclassified. The IRS and labor departments look at reality, not paperwork.

Can I file for unemployment if I was misclassified and lost my job?

Yes. If you were misclassified and the work ends, you can file for unemployment and claim misclassification. The state will investigate. If they determine you were actually an employee, you may receive unemployment benefits and the employer may owe back taxes.

How do I report misclassification income on my taxes?

You have two options: (1) Report it as self-employment income (Schedule C and SE) and pay full self-employment tax, or (2) File Form 8919 to pay only the employee share of FICA. Option 2 requires you to have filed SS-8 or otherwise meet IRS criteria for using the form.