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As a W2 worker for a US company, my monthly pay was divided into 3 quantities: $X in salary, $Y in per diem, and $Z in car allowance. The benefit was that I would only pay tax on the salary, so my monthly pay is $X + $Y + $Z, but I would only pay income tax for $X.

If I change to a 1099, can the employer divide my pay into 3 different quantities, similar to a W2?

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  • A contractor is free to negotiate whatever terms they'd like....
    – quid
    Dec 19, 2018 at 19:42
  • Do you actually use your car for work? (Not just commuting to your usual work location, but as part of the job.) If so, you can (or could in prior years) deduct your mileage as a business expense at a pretty reasonable rate. But otherwise, AFAIK everything you get that's reported on a 1099 is income. You can deduct allowable expenses from that on Schedule C.
    – jamesqf
    Dec 20, 2018 at 5:38

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They can, but there's no point. You will be required to treat everything they pay you as income, and justify any expenses (mileage, etc.) that you deduct from that income before calculating how much tax you owe.

You should also consider that you will have to pay self-employment tax (Social Security and Medicare) of approximately 12.9% on the result of schedule C (income less allowable expenses) as well as income tax on your total taxable income (SE income less half SE tax to match the exclusion of employer half FICA for W2 people, plus any investment income or realized gain, pre-2019 alimony, most disability or retirement benefits if you get those, damages from a lawsuit other than injury, etc., less applicable deductions and credits). [thanks dave_thompson_085]

The irs.gov website is quite helpful in telling you what allowances you can claim with or without receipts, but it's probably worth consulting with an accountant.

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    Remember you must pay self-employment tax (Social Security and Medicare) on the result of schedule C (income less allowable expenses) as well as income tax on your total taxable income (SE income less half SE tax to match the exclusion of employer half FICA for W2 people, plus any investment income or realized gain, pre-2019 alimony, most disability or retirement benefits if you get those, damages from a lawsuit other than injury, etc, less applicable deductions and credits).
    – dave_thompson_085
    Dec 19, 2018 at 21:00

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