27 January

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1099 vs W-2: How Your Work Classification Affects Your Taxes

By: Nailah Morris

When it comes to paying workers in the United States, particularly here in Florida, two forms you’ll hear about time and again are the 1099 and the W-2. While both are used for reporting income to the IRS, they represent distinct types of working relationships, carry different tax responsibilities, and affect both businesses and workers in meaningful ways.

This post breaks down what each form means, how they are similar, how they differ, and why it matters, especially for Florida businesses and contractor workers navigating the upcoming tax year.

What Are 1099s and W-2s?

Form W-2: Wage and Tax Statement

A W-2 form is issued by an employer to a traditional employee. It reports wages, salaries, and tips for the year, as well as the taxes withheld from the worker’s paycheck, including federal income tax and Social Security/Medicare taxes.

Form 1099: Information Return

“1099” refers to a family of IRS information returns. For independent contractors and most freelancers, Form 1099-NEC (Nonemployee Compensation) is the standard form for reporting payments to non-employees. This reflects income that must be reported to the IRS, but does not have taxes withheld at the time it’s paid.

Similarities: What They Share

Even though 1099s and W-2s serve different roles, they share several important characteristics:

Both Are IRS Reporting Forms

Both forms are information returns used to report income to the IRS.
Both forms must be filed with the IRS and a copy provided to the worker by January 31 following the tax year.

Essential for Your Tax Return

Workers, whether employees or contractors, use these forms to prepare federal and, in certain states, state tax returns.

Reflect Compensation

Both forms disclose the total amount paid for labor or services during the year.

Differences: What Sets Them Apart

Worker Classification

The most fundamental difference is the type of working relationship each form represents:

W-2 workers are employees subject to employer direction and control.
1099 recipients are independent contractors or self-employed individuals responsible for their own business decisions.

Classifying a worker correctly matters; misclassification can trigger audits, fines, and liability for unpaid taxes. Employers must apply IRS common-law tests (control, financial relationships, contract terms) to determine proper classification.

Tax Withholding and Payments

W-2 Employees

Employers withhold federal and Social Security/Medicare taxes from paychecks.
Employers also pay an additional share of FICA taxes and unemployment taxes and often contribute to workers’ compensation or unemployment insurance.

1099 Contractors

Taxes are not withheld by the payer; contractors are responsible for paying income tax and self–employment tax, covering both Social Security and Medicare on their own.
Contractors often make quarterly estimated tax payments directly to the IRS.

Benefits and Legal Protections

Employees (W-2) are typically eligible for employer-provided benefits such as health insurance, retirement plans, and paid leave.
Contractors (1099) generally do not receive these benefits and are responsible for securing their own insurance and retirement savings.

Control Over Work

One major difference is the amount of control the hiring party has:

Employees: Employers decide the how, when, and where of work.
Contractors: They generally control how, when, and with what tools they complete agreed-upon results.

This distinction is central to IRS classification tests, not simply the title on a form.

Real-World Impacts for Florida Workers and Businesses

In Florida, independent contractor are responsible for their own tax payments and reporting if they receive $600 or more in a year.

Meanwhile, employers in Florida, as in every other state in the U.S., must ensure proper worker classification to comply with federal and state tax and labor laws. Misclassifying a W-2 employee as a 1099 contractor can lead to penalties, back taxes, and interest.

Conclusion

Understanding the differences between 1099s and W-2s helps both workers and businesses make informed decisions about classification, tax obligations, and legal responsibilities. While both forms report income, they reflect very different relationships and carry distinct tax consequences. Proper classification protects your financial and legal position and ensures compliance with IRS rules and Florida standards alike.

If you’re unsure whether you or someone you hire should be classified as a 1099 contractor or a W-2 employee, it’s always wise to consult a tax professional or employment attorney.

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It should be noted that I am not your lawyer (unless you have presently retained my services through a retainer agreement). This post is not intended as legal advice; it is purely educational and informational, and no attorney-client relationship shall result after reading it. Please consult your own attorney for legal advice. If you do not have one and would like to retain my legal services, please get in touch with me using the contact information listed above.

All information and references to laws, rules, regulations, and advisory opinions were accurate as of this time, but laws are constantly evolving. Please get in touch with me to ensure that the law governing your business is up to date. Thank you.

22 August

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Jones Health Law Podcast: What Is A Homestead Exemption and Do I Qualify?

Posted by Jamaal R. Jones, Esq.

in Podcasts

22 August

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What Is A 1031 Exchange and How Can It Benefit You?

Posted by Jamaal R. Jones, Esq.

in Videos

Web: www.JonesHealthLaw.com
Phone: (305)877-5054
Instagram: @JonesHealthLaw
Facebook: @JonesHealthLaw
Youtube: @JonesHealthLaw

To understand what a 1031 Exchange is, it is crucial to understand where the name originates from, as well as, the tax definitions and rules supporting the exchange. According to the Internal Revenue Service (“IRS”), the Internal Revenue Code (IRC) Section 1031 provides an exception for taxpayers who have sold a property at a gain. This tax rule is intended for use on investment or business properties. The 1031 tax break exchange is only allowable to personal residences after certain circumstances are met. Primary residences typically have other allowable tax breaks on capital gains taxes. After the sale of an asset (a property in this case) a taxpayer would normally be required to pay capital gains taxes on the sale. Capital Gains Taxes are the taxes owed from the profit of a sale of assets. If an asset is held for less than a year after it is purchased and is then sold at a profit, those gains are typically added to the taxpayer’s income. But if an asset is held for over a year, the ‘Long Term Capital Gains” tax rate is applicable. The percentage of capital gains owed per sale is dependent on the tax bracket of the taxpayer. The current rates range from 0% to 20% depending on income.

12 March

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What is a 1031 Exchange and How Can It Benefit You?

Posted by Jamaal R. Jones, Esq.

in Blog

Definitions and Tax Rules

To understand what a 1031 Exchange is, it is crucial to understand where the name originates from, as well as, the tax definitions and rules supporting the exchange. According to the Internal Revenue Service (“IRS”), the Internal Revenue Code (IRC) Section 1031 provides an exception for taxpayers who have sold a property at a gain. This tax rule is intended for use on investment or business properties. The 1031 tax break exchange is only allowable to personal residences after certain circumstances are met. Primary residences typically have other allowable tax breaks on capital gains taxes. After the sale of an asset (a property in this case) a taxpayer would normally be required to pay capital gains taxes on the sale. Capital Gains Taxes are the taxes owed from the profit of a sale of assets. If an asset is held for less than a year after it is purchased and is then sold at a profit, those gains are typically added to the taxpayer’s income. But if an asset is held for over a year, the ‘Long Term Capital Gains” tax rate is applicable. The percentage of capital gains owed per sale is dependent on the tax bracket of the taxpayer. The current rates range from 0% to 20% depending on income.

IRC Section 1031 allows taxpayers to postpone paying capital gains taxes on the sale of a real estate property by allowing taxpayers to roll over the taxes on the gain if the proceeds are reinvested in a similar property as part of a “Like-Kind Exchange”. A Like-Kind Exchange is an exchange of real estate property that is of similar nature that can be traded without incurring tax liabilities. The Internal Revenue’s rules around Like-Kind properties of similar nature are very liberal. The properties in the exchange do not need to be the same type of property. The only pertinent rule is that the properties be used for business or investment purposes. Personal residences are not eligible to be qualified as like-kind properties and can only benefit from Section 1031 when they meet specific requirements. Properties taking part in a 1031 exhange must also be held in the United States to qualify.

What Is A 1031 Exchange?

In layman’s terms, a 1031 exchange is a tax break. It allows for investors to swap investment properties without having to pay taxes at the time of exchange. It grants taxpayers the ability to grow their investment without having to pay capital gains taxes until an investment is liquidated or sold for cash. There is no limit to how frequently taxpayers are able to take part in 1031 exchanges. Taxpayers can defer these capital gains taxes and rollover the gains for years.

Key Timeline Regulations Of A 1031 Exchange

Most 1031 exchanges are delayed exchanges. Typically, property owners are not able to find a property to exchange at the moment of a sale. There are rules established to define delayed exchanges. Two key rules must be observed for every delayed exchange. The 45 Day Rule states that within 45 days of the sale of a property, a replacement property must be designated in writing to an intermediary. A Qualified Intermediary , sometimes referred to as an ‘exchange facilitator” or an “exchange accommodator”, must be appointed to hold the gains after the sale of a property for the sale to be recognized as a 1031 exchange. The intermediary is usually appointed by the seller and acts as a third party to hold funds and can also coordinate transfers, assist with paperwork, and support investors. There are no definitive rules on who can act as an intermediary. There are, however, rules on disqualifications for intermediaries. An intermediary must be neutral and not be directly related to any of the parties involved. Disqualified parties include family members, friends, anyone who has acted as an agent for the parties, tax preparers, etc. Investors are allowed to designate up to three properties to the intermediary as long as one of the properties is eventually closed on. The 180 Day Rule states that a property must be closed on within 180 days of the sale of the old property. Both the 45-day rule as well as the 180-day rule run simultaneously. This means that the clock begins to move for both of these rules once the sale of the property closes.

What Are The Pros And Cons of A 1031 Exchange?

Typically, if an investor is looking to purchase a new property soon after the sale of a property, a 1031 exchange is recommended. There are many reasons why an investor would be looking to carry out a 1031 exchange. The obvious pro is deferring capital gains taxes on the sale of a property. A 1031 exchange also allows for investors who are interested in moving to a new market to move seamlessly. There are no distance limitations for a 1031 exchange. There are also no limits to how often you can take part in a 1031 exchange. This means that an investor can sell a property anywhere in the United States and use the money from that sale to purchase another similar property anywhere else in the United States. It gives investors the opportunity to switch markets without having to pay major taxes.

There are, however, some cons to keep in mind. In order to move forward with a 1031 exchange, the capital gains earned on the sale of a property must be rolled over to a ‘like-kind’ investment. Should an investor want to use the gains for any other type of investment or purchase, they would lose the protection of the 1031 exchange and be required to pay the applicable taxes. Another con is that the structure can become complicated if there are multiple investors in a property and they are not all in agreement. It is possible to complete a 1031 exchange if not all of the investors of a property agree to rollover the gains. The remaining funds would be placed into a separate account and be liquidated. This circumstance is not common and is more complex.

Overall, a 1031 exchange is a great tool for investors. The Internal Revenue Service allows for investors to get a tax break and roll over their tax liabilities on the capital gains taxes potentially forever. It is a great way for investors to maximize their opportunities and build generational wealth.

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It should be noted that I am not your lawyer (unless you have presently retained my services through a retainer agreement). This post is not intended as legal advice, it is purely educational and informational, and no attorney-client relationship shall result after reading it. Please consult your own attorney for legal advice. If you do not have one and would like to retain my legal services, please contact me using the contact information listed above.

All information and references made to laws, rules, regulations, and advisory opinions were accurate based on the law as it existed at this time, but laws are constantly evolving. Please contact me to be sure that the law which will govern your business is current. Thank you.

08 March

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Cryptocurrency in Healthcare

Posted by Jamaal R. Jones, Esq.

in Videos

25 February

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Healthcare is the Next Cryptocurrency Frontier

Posted by Jamaal R. Jones, Esq.

in Blog

What is Cryptocurrency?

Cryptocurrency is a virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled. Bitcoin is the most popular cryptocurrency on the market but there are well over 1000 other “altcoins” in existence. The value of each cryptocurrency is largely speculative similar to stocks on an index. It has no intrinsic value or legal tender status and is only worth what individuals are willing to pay for it.

Who is going to regulate it?

There’s no hard and fast rule as to who has authority to regulate cryptocurrency, but several federal agencies have stepped up to the plate. These agencies include: (1) the Securities and Exchange Commission (“SEC”); (2) Commodity Futures Trading Commission (“CFTC”); (3) Internal Revenue Service (“IRS”); (4) Department of Treasury; (5) the Federal Reserve; and (6) States. For example, The CFTC has designated bitcoin as a commodity. The CFTC announced that fraud and manipulation involving bitcoin traded in interstate commerce and the regulation of commodity futures tied directly to bitcoin is under its authority. Treasury Secretary Steven Mnuchin stated last year that he had formed groups in the Treasury Department who were tasked with examining bitcoin “very carefully.” The SEC and CFTC held a joint-meeting stating that the two bodies would work in unison to develop a regulatory framework with varying degrees of strictness for regulations for Initial Coin Offerings (“ICO”), blockchain and other digital ledger tech. The White House has stated that they are still studying and trying to understand cryptocurrencies and are not close to the regulation stage. As the cryptocurrency market grows many will ask the SEC and other agencies for protection regulations.

Several states across the country have taken the matter into their own hands by drafting or passing legislation that aims to regulate how blockchain and cryptocurrency can be used. Organizations like the National Conference of Commissioners on Uniform State Laws are taking steps to create a model act that provides for the regulation of cryptocurrency businesses at the state level.

Why should it be regulated?

Cryptocurrencies operate largely outside of the traditional financial system, which increases the likelihood of money laundering, tax evasion, and fraud.

How is it Regulated?

The IRS says that cryptocurrencies like bitcoin must be treated as property for tax purposes. The result is that capital gain or loss should be recorded as if it were an exchange involving property. It should be treated like inventory if it is held for resale. The IRS stated that if the cryptocurrency is used as payment, it should be treated like currency but must be converted, and its fair market value checked on an exchange.

Many states have not passed laws designed to significantly regulate or provide guidance on how to use cryptocurrency. A few states have tried to define cryptocurrency as a form of legal tender subjecting it to the same rules and requirements as traditional money. These states have attempted to accomplish this through amendments to existing definitions of money to include or exclude digital currency, and other states have provided opinion letters or some other form of guidance.

In June 2017, Governor Rick Scott signed House Bill 1379, which expands the Florida Money Laundering Act to expressly prohibit the laundering of cryptocurrency. The new law defines cryptocurrency or virtual currency as “a medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other Country.” This bill took effect on July 1, 2017.

The IRS has stated that in some environments, cryptocurrency operates like “real” currency, but it does not have legal tender status in any jurisdiction. Therefore, cryptocurrency must be treated as property for U.S. federal tax purposes. In other words, general tax principles that apply to property transactions apply to transactions using cryptocurrency. This means that:

Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

Benefits of Cryptocurrency

Healthcare providers can save money by using blockchain technology and cryptocurrency. Providers can reduce or eliminate banking fees since cryptocurrency bypasses the middleman, which in this case is the banking institution. The money saved can be significant and might be used to purchase new equipment, remodel the office, or stored in the practice’s digital wallet to hopefully accrue value and interest. The cryptocurrency market is very volatile due to several reasons, such as regulatory concerns. Providers may want to keep that in mind before deciding to accept cryptocurrency as payment for services.

Many big players, such as Microsoft, PayPal and DISH Network are already on board with the blockchain-cryptocurrency revolution. Alphabet (parent company of Google) has an artificial intelligence department called DeepMind that is building a blockchain system that is intended to be used by healthcare providers.

Dark side of Cryptocurrency

It is becoming commonplace for hackers who hold hospital computers and other technology ransom to request payment in the form of cryptocurrency. Cryptocurrency works by using a mix of public and private keys to maintain security and anonymity of payments. This is problematic if you can see where the money goes and to which wallet it is deposited into but can’t identify the person linked to the wallet. Law enforcement would have a very difficult if not impossible task of trying to track down individuals who are exchanging cryptocurrency. That means that any cryptocurrency that is stolen can never be found and victims will never have it returned to them. One way for providers to try to prevent this is by storing cryptocurrency offline on flash drive-like devices.

Hackers are also capable of using Trojan malware to change the wallet address from a provider’s computer to their own, essentially diverting the funds away from the provider or their intended recipient.

As we have seen in the cryptocurrency world, early adopters usually reap massive rewards. It remains to be seen if the same rewards for cryptocurrency could spill over into the healthcare sector. Many questions about the future of cryptocurrency remain unanswered. Providers would like to know if they can accept cryptocurrency as payment from their patients for rendering health care services? Can Healthcare providers pay their business associates in cryptocurrency? Will commercial insurers and federal program payors reimburse providers in cryptocurrency? To find out the answers to these questions and more you should consult Jamaal R. Jones, Esq., a healthcare attorney who understands the changing landscape of cryptocurrency and blockchain. Mr. Jones can be reached at jrj@joneshealthlaw.com or (305)877-5054.