Question

A worker may prefer to be treated as an employee (rather than an independent contractor) for which of the following reasons:

a. avoids the cutback adjustment as to business meals.
b. the FICA rate is lower than for independent contractors.
c. all of the FICA tax is deductible for income tax purposes.
d. None of these choices are correct.
e. work-related expenses are not subject to the 2%-of-AGI floor.

Answer 1

A worker may prefer to be an employee because as an independent contractor, they must pay both the employee and employer sides of the payroll tax, while work-related expenses for employees are fully deductible without being subject to the 2%-of-AGI floor.

Step-by-step explanation:

A worker may prefer to be treated as an employee rather than an independent contractor for a variety of reasons related to taxes and benefits. As an employee, one only observes a 6.2% deduction from their paycheck for Social Security and 1.45% for Medicare. In contrast, as an independent contractor, which often includes those working in the "gig economy" and receive a 1099 tax statement, one is responsible for paying both the employee and employer sides of payroll taxes, effectively doubling their FICA obligations.

Among the provided options, the correct reason a worker may prefer to be an employee is:

• e. Work-related expenses are not subject to the 2%-of-AGI floor.

This allows for the full deduction of some unreimbursed work-related expenses for employees, which can be especially beneficial at tax time.