freelance- no taxes? no way!

August 29, 2005 10:49 AM

I have a question about risk and ethics in freelancing- computer programming and web design.

I met this fellow through a popular online freelance site. He needed a contractor and I needed work. He wanted to work outside the site we met on, which is a breach of that contract. However, I agreed. Now I have asked him about how his other contractors have managed taxes and if he will 1099 me. He said he had hoped to pay me "under the table" via paypal. Now, I'm not the most ethical person, but this strikes me as a) wrong and b) risky. He said he supposes he could pay me and 1099 me if I have to have that, but now I feel rubbed the wrong way and am not sure I should even be doing business with him. I'm looking for advice on how to conduct a reasonable freelance gig, your thoughts on the ehtics of this, and ideas on how to protect oneself against bad business situations as a freelancer. Thanks.

posted by pissfactory to computers & internet (13 comments total)

I stick with 1099s because if everything is clearly above the board, it feels like there's less of a chance of being fucked over by the employer.

But in terms of taxes, if you report the income you recieved via paypal on your 1040, and on the appropriate additional forms, the government doesn't give a shit. I did that last year when I recieved income in the form of informal cheques that didn't have a 1099 involved. Just make sure you set aside around 20% to hand to the feds.
posted by cmonkey at 11:02 AM on August 29, 2005

Also, use a contract when you freelance. Like a real, lawyer-licensed-to-practice-law-in-your-state approved contract. If someone doesn't want to sign a contract guaranteeing the rate structure, requirements for completion, payment schedule and so forth, don't even considering working for them.
posted by cmonkey at 11:04 AM on August 29, 2005

If you earn a significant portion of your income as a freelancer, you'll want to keep track of where every cent originated in case you get audited. However, you don't need a 1099 from the employer unless they pay you more than a certain amount ($600 I think).

What is weird about this situation though, is that there's no reason for the the employer to pay a contract worker under the table, since you're responsible for your own taxes and they'd want to claim the expenditure.

Lying on your taxes is walking a tightrope that's probably not worth it.
posted by maniactown at 11:05 AM on August 29, 2005

I'm with maniactown. I can't understand why he is reluctant to issue you a 1099, unless he is running his entire business under the table (in which case it would be very bad indeed for him if you file a 1099). It's not too hard to imagine that someone would want to cheat Uncle Sam but not you. Then again, you don't have a lot to go on with this guy. I'd back off.
posted by adamrice at 11:26 AM on August 29, 2005

I'm on the other end of this i'm hiring a programmer to do some work with one of my sites, how do I go about giving him a 1099 form?
posted by matimer at 11:35 AM on August 29, 2005

I'm on the other end of this i'm hiring a programmer to do some work with one of my sites, how do I go about giving him a 1099 form?

Talk to your/an accountant. This should be a standard part of your annual tax reporting.

there's no reason for the the employer to pay a contract worker under the table

I agree, it's odd, and it probably means that he's paying for you with unbudgeted money- possibly out of his own pocket.

Bottom line- ask for a 1099. It's not optional for him if you got more than $600. If you did, and he won't, report it as income anyway. When the IRS writes back and asks "where is the 1099?", simply state that the employer refused to send you one. They'll take it from there. No need to get yourself any more involved.
posted by mkultra at 12:02 PM on August 29, 2005

Matimer - Issuing 1099s is easy; IRS.gov will send them to you if you ask or you can pick them up at the local post office or library come tax time. You can fill them out by hand. I am unsure about what you do if you don't have an EIN.

pissfactory, I wouldn't worry about getting a 1099 from him; it's not your responsibility for him to follow the law. It IS your responsibility to file that income whether you get a 1099 or not. Report it come tax time and let him handle his own ethics and audits.

I would worry about the fact that someone who will cheat the government, people with tanks and flamethrowers, is probably willing to cheat you.
posted by phearlez at 12:11 PM on August 29, 2005

yeah, but mkultra... do I want to get involved with that? Seems like that could cause issues for me and him and I would just rather find a good relationship with someone who is on the level and go from there, pour my energy into that.

it seems to me that i might be further ahead cutting the cord on this one earlier rather than later.
posted by pissfactory at 12:15 PM on August 29, 2005

The problem is that you've brought in the loop. You know the guy is up to no good, and if you go along for the ride, you could have to take it all the way to the end of the line.

And the problem is that it is a much more dark set of motives that inspires one not to 1099 a contractor than not to W2 an employee. (Think money laundering in the former case, versus vanilla tax evasion in the former.) The mandatory minimums for conspiracy to commit money laundering would knock your socks off...
posted by MattD at 12:34 PM on August 29, 2005

Given that this individual agreed he'd 1099 the poster if it was required I'm more inclined to think of paperwork fear than overt fraud; I don't know how many of you have gone through the paperwork to set up a new business lately but it can be intimidating; I'm doing it right now for a new venture and even having done it before (in a different state) and knowing it's just a few pieces of paper, it's a bit daunting.

Likely the person looking to hire has never set up his/her venture as a corporation or sole proprietor, doesn't have an EIN and has never filed any 1099s before.
posted by phearlez at 3:20 PM on August 29, 2005

Ask him for half the money upfront and the other half on completion of the work. Tell him that you have to declare the income or risk going to jail for tax evasion. Above all, follow cmonkey's advice and get a real written contract.

If he balks at any of that, you know you don't want to work with him.
posted by fuzz at 4:21 PM on August 29, 2005

'Needs must when the devil drives' so I will not pass judgement on (nor discuss the ethics of) cheating a 'popular, online' freelance site.

In the future, however, I would hope that you stay clear of any contractor that suggests doing so.

If the contractor is willing to violate his contract with the freelance site for what is really a very small amount of money, it is quite likely that this contractor will 'nickel and dime' you upon project completion. In fact, there is a very good chance that you may never see any payment at all. If the contractor has no qualms cheating the freelance site owner of his/her hard work, what keeps them from doing the same to you?

A contract? While having a contract is always better than a kick in the head, it is really just a piece of paper unless one of the following conditions are met:
1) Your contractor is willing to (and capable of) upholding his obligations under the contract, or;
2) You are prepared to invest the time and money it takes to legally enforce said contract, hire a collection agency, etc.

What if this contractor decides to honor their contract with you in the same way that they honored their contract with the freelance site?

If you have already completed the project, get paid as soon as possible (with or without the paperwork). By cheating the freelance site the contractor has already demonstrated a lack of money, ethics or both. I would be more concerned about getting paid right now than any 1099.

If you have not started working on the project, walk away at a brisk pace and don't look back.
posted by cup at 11:38 PM on August 29, 2005

mkultra writes "When the IRS writes back and asks "where is the 1099?", simply state that the employer refused to send you one. They'll take it from there. No need to get yourself any more involved."

Just remember to not give them out as a reference after.
posted by Mitheral at 11:38 AM on August 30, 2005