1099 or W-2? What the Contractor Model Means for Your VA

This post explains general ideas. It is not tax or legal advice. Confirm how rules apply to you with your CPA or attorney.

What is the difference between a 1099 and a W-2 virtual assistant?

A 1099 virtual assistant is an independent contractor who runs their own business and receives a Form 1099. A W-2 assistant is an employee whose employer withholds taxes. The IRS says you generally do not withhold or pay payroll taxes on independent contractors. See the 1099 vs W-2 glossary entry.

Why do VA companies choose one model over the other?

Companies choose the model that matches their service. Some sell a managed team of employees with benefits. Others sell flexible hours from independent professionals. Both can be honest choices. The difference shows up in price, minimums and how much you can direct the work.

Here is what two companies state on their own sites:

• Boldly states that its U.S. staff are employed by Boldly. It says this helps buyers avoid the compliance risk of working with independent contractors. Its plans start at 40 hours a month.
• Prialto states that every virtual assistant is a full-time Prialto employee.
• Peachtree VA assistants and bookkeepers are 1099 independent contractors to Peachtree VA. Our packages start at 25 hours a month, month-to-month.

Employee models may suit you if you want one managed team and a higher price is fine. Contractor models may suit you if you want a lower entry point and flexible hours. Our published price comparison shows how the minimums compare.

How does the IRS decide who is an employee?

The IRS looks at the whole relationship. It states that all information showing the degree of control and independence must be considered. It groups the facts into three categories: behavioral control, financial control and the type of relationship.

1. Behavioral: does the company control or have the right to control what the worker does and how the worker does the job?
2. Financial: who controls the business side, such as pay method, expenses and tools?
3. Type of relationship: are there written contracts or employee-type benefits, and is the work a key part of the business?

The IRS adds that no single factor decides the answer. It also says a remote worker is your employee under the common-law rules if you can control what will be done and how. That is why the label on a contract does not settle the question.

What does the contractor model mean for you day to day?

The contractor model changes how you manage, not how you delegate. You still hand over tasks and review results. A contractor has more say over methods and schedule, and you do not run payroll, withhold taxes or offer benefits for them.

Peachtree handles the contract and compliance side for you. Our FAQ says this arrangement lets us handle all contractual and compliance aspects, so you do not carry the administrative overhead. Your assistant works Monday through Friday, 9 a.m. to 5 p.m., and a dedicated Relationship Specialist supports the match.

Here is a practical way to work with any contractor:

• Describe the outcome you want and the deadline.
• Write the steps as a standard operating procedure when the process matters.
• Agree on deliverables, deadlines and communication in the written agreement.
• Keep your own paperwork current, such as the non-disclosure agreement.

What is the risk of getting it wrong?

The IRS says that if you treat an employee as an independent contractor without a reasonable basis, you may be held liable for employment taxes for that worker. The risk sits with whoever is the employer. It is the main reason to ask any provider how it classifies its workers.

Ask your VA company four questions:

1. How do you classify your assistants, and why?
2. Who signs the agreement with the assistant?
3. Who is responsible if a classification question comes up?
4. May my attorney or CPA review the service agreement?

Then ask your own CPA or attorney. State rules can differ from federal ones, and only an advisor who knows your facts can give you a tax or legal answer.

What should you ask your CPA or attorney?

Bring facts, not labels. Your advisor can only judge your case if they see how the work happens. Write down the answers below before the meeting, and ask the VA company for its agreement ahead of time.

• What will the assistant do, and who decides how? Describe the tasks and who sets the methods.
• Who sets the hours and the tools? Note what the agreement says and what happens in practice.
• Who pays the assistant, and how? Note whether you or the company issues payment and tax forms.
• Is this a long-term, central role? The IRS lists the continuing nature of the relationship among its factors.
• Does your state apply a different test? State rules can differ from federal ones.

Your advisor may also tell you to document your decision. The IRS suggests documenting each factor used in the determination. A short note in your files is a sensible habit for any outside help.

Next step

Learn how our U.S.-based virtual assistant services work, or book a free strategy call and bring your questions about our contractor model. For more on choosing a model, read virtual vs in-house assistants.