The term 1099 “employee” typically refers to self-employed workers or independent contractors – they are generally not truly employees as defined by the Internal Revenue Service (IRS) or some state laws. Some common examples of these kinds of self-employed workers may include doctors in hospitals, building subcontractors, and all kinds of freelancers.
People commonly think that having yearly income reported upon a W-2 versus a 1099 is the main difference between a regular employee and a 1099 employee. The reality is more complicated. Those documents do indicate employment classification, but they don’t fully explain the distinction between the two kinds of workers and sometimes a worker may be misclassified and receiving the wrong type of form.
The IRS and many individual states each have complicated rules for determining whether a worker should be considered an employee (who receives a W-2 tax form) or an independent contractor (who receives a 1099 tax form).
These clarifications will help explain the line between employees and self-employed workers under the IRS guidelines:
If you decide to offer employee benefits to workers who get a Form 1099, for example by giving them access to your group medical plan, then you don’t necessarily have to pay some or all of the premiums. Some self-employed people may just hope to have the chance to join a group health plan and be willing to pay the entire premium. IRS rules may also allow the independent contractor to deduct the premiums that they pay for “1099 employee benefits” from their income at tax time.
Your company might not have to offer a worker who gets a Form 1099 employee benefits. On the other hand, you may decide that you or your business could benefit if you do. Regulations generally do not prevent you from including your 1099 “employee” in your health benefits, and some health insurance companies will accept your 1099 “employee” in your group medical insurance.
Offering a worker who gets a Form 1099 employee benefits could benefit your company in a few ways:
Some health insurance companies won’t accept a 1099 contractor on a group business plan. Before you decide if you’ll offer your 1099 “employees” group medical benefits, you can compare health insurance for your business on the eHealth Group Health Insurance Page. You may find that one of these fits your situation:
No matter which scenario fits your business, we can help you compare multiple options online to give you the information you need to make a good choice.
This article is not intended as legal or accounting advice, so check with your legal or accounting advisor instead of relying on the general information in this article.