What is a 1099 employee?
What is a 1099 employee? Our quick guide gives you the clarity you need to hire internationally and tap into global talent with confidence.
Over the last few years, business owners in the U.S. have increasingly turned to overseas hiring following the proliferation of remote work to access a broader talent pool while maintaining cost efficiency through flexible, contract-based work.
This makes correct employment classification more important than ever.
As a result, thereโs often confusion around employment classification, especially when it comes to 1099 employees, who are sometimes mistakenly lumped in with all remote workers.
If youโre asking, โWhat is a 1099 employee?โโyouโre not alone. Itโs a common question and one that comes up frequently as businesses scale and tap into global talent.
First off, 1099 employees arenโt technically employees at allโthis term is used informally to refer to independent contractors who are paid for their services without being on the companyโs payroll.
What is a 1099 Employee?
โ
Self-employed (whether they be a freelancer, contractor, consultant, etc.) โ In control of how, when, and where they work โ Responsible for their own taxes (there are no withholdings such as Social Security or Medicare from the payer) โ Not entitled to employee benefits such as health insurance, paid time off (PTO), or unemployment benefits. |
At Payoneer WFM, we understand how important it is to build your team with the right people from the start. Thatโs why weโve created this comprehensive guide for 1099 employeesโto help you navigate the classification process with clarity and confidence.
What is a 1099 Employee? (Cont.)
The โ1099โ in the term 1099 employee comes from the IRS Form 1099, a series of tax documents used to report various types of non-employee income.
Independent contractorsโoften referred to as 1099 employeesโdonโt have taxes withheld by an employer. Instead, they use these forms to report the income theyโve earned throughout the year when filing their taxes.
The counterpart to a 1099 employee is a W-2 employee, named after IRS Form W-2, which employers issue to report wages, salaries, and tax withholdings for traditional employees.
In contrast to 1099 contractors, W-2 employees have their income tax, Social Security, and Medicare contributions automatically deducted from their paychecks by their employer.
The other aspect that makes it difficult to answer the question โWhat is a 1099 employeeโ is that there are several types of 1099 forms that may be used to report different kinds of income, including:
Common types of IRS 1099 forms and what they report
1099-NEC | Used to report payments to independent contractors (the primary form for 1099 workers) |
1099-MISC | Reports miscellaneous income (e.g., rent, prizes, royalties) |
1099-K | Reports payments received via third-party platforms (e.g., PayPal, Stripe) |
1099-INT | Reports interest income (from banks, etc.) |
1099-DIV | Reports dividends and distributions |
1099-B | Reports income from broker or barter exchanges (stocks, trades) |
1099-R | Reports retirement account distributions |
1099-G | Reports government payments (e.g., unemployment compensation) |
1099-C | Reports canceled debts |
1099-Q | Reports distributions from education savings accounts |
1099-S | Reports proceeds from real estate transactions |
1099 employees vs W-2 employees
Can I hire 1099 employees overseas?
No, anyone hired remotely to work for you overseas, even if they are independent contractors or freelancers, will not receive a Form 1099.
This is because IRS Form 1099 is specifically designed for U.S. freelancers or contractors. Instead, they will receive a form W-8BEN to confirm their foreign tax status.
The IRS takes this route for reporting overseas workers because no U.S. taxes are withheld from overseas pay. Instead, they will be beholden to their own countryโs tax laws and regulations.
However, companies hiring overseas also need to be aware of these unique tax laws in addition to their own.
How do I pay my overseas workers?
If youโre one of the many businesses looking to tap into the growing labor markets across borders, youโll need to be aware of the challenges associated with sending international payments, such as:
- Currency exchange rates
- Banking fees
- Potential delays
- Cultural differences
- Local and provincial labor and tax laws
The smart way to hire overseas workers for many businesses is by partnering with an Employer of Record (EOR) like Payoneer Workforce Management. Why? Because Payoneer WFM takes care of the backendโlocal compliance, tax paperwork, payroll, and even benefitsโso you donโt have to spin up a foreign entity just to build your global team. Itโs a cleaner, faster way to stay focused on growth while staying fully above board. |
Hire globally with Payoneer WFM
When asking, โWhat is a 1099 employee?โ itโs important to understand how classification impacts your hiring strategy, especially when it comes to building an international team.
Since overseas workers typically canโt be classified as 1099 employees under U.S. tax law, choosing the right path forward is essential. Thatโs where many businesses turn to an EOR.
At Payoneer WFM, we help businesses expand their talent pool, boost productivity, and protect their bottom line – all while handling the compliance, tax, and administrative work that comes with international hiring with our suite of contract management services.
So you can stay focused on growth, not paperwork.
FAQs
1. Does an employer withhold taxes for a 1099 worker?
No, employers do not withhold taxes for 1099 workers. Independent contractors are responsible for paying their own income and self-employment taxes.
2. Is it better to have 1099 or W-2 employees?
It depends on your business needs. 1099 workers offer flexibility and lower costs, but canโt be closely managed like employees. W-2 employees provide more control and stability but come with higher costs and more compliance requirements.
3. What type of worker qualifies to receive a 1099?
A worker qualifies for a 1099 if they are an independent contractor who controls how and when they work, uses their own tools, and works with multiple clients. They are not considered employees under IRS guidelines.
Disclaimer
Nothing herein should be construed as if Payoneer Inc. or its affiliates are soliciting or inviting any person outside the jurisdiction where it operates/is licensed to engage in payment services provided by Payoneer Inc. or its affiliates, unless permitted by applicable laws. Any products/services availability are subject to customerโs eligibility. The availability of this product is not guaranteed and may vary. Not all products/services are available in all jurisdictions in the same manner.
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