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Advice: Which tax form do you need, 1099 or W2?

How to tell whether you need a 1099 or a W2 at tax time. Also: Making employees want to stay.

February 21, 2011|By Karen E. Klein

Dear Karen: Nearly 80% of my revenue comes from one company on a 1099 basis. Will the IRS consider me that company's employee?

Answer: The IRS uses a checklist to evaluate whether individuals are independent contractors or employees, said Keith Hall of the National Assn. for the Self-Employed. If your major client controls the "who, where, when and how" of your work schedule, you're probably an employee for tax purposes. The company should withhold payroll taxes and send you a W2 form.

If you control your work product and have other clients, you're most likely an independent contractor and should get a 1099 tax form. In that case, you must pay relevant payroll and self-employment taxes yourself.

"It's very important to get the decision right because the IRS can second-guess, which could potentially lead to penalties and interest if taxes were underpaid," Hall said.

The Determination of Worker Status checklist, Form SS-8, can be downloaded at

Make employees want to stay

Dear Karen: How can we keep employees in the area when so many businesses are leaving?

Answer: Quality of life matters most to employees, said Bob Potter, director of the Inland Northwest Economic Alliance in Liberty Lake, Wash. Consider offering flexible work schedules and moving to a community with good public schools, affordable homes and minimal commute times.

"Take advantage of local workforce training programs and California's excellent two-year college system to provide employees with new skills that help further their careers and your business goals," Potter said.

Small-business questions? E-mail Karen at

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