Are you and employee or self employed? This is not an uncommon thing, where people do not know or understand how they are classified or paid. There are some significant differences from a W2 employee or a 1099 Self employed individual.
I am not an attorney or a CPA, I do not work for the IRS or department of labor nor do I want to. However, I do want to talk about this from a loan origination point of view and what the basic facts are of what we ask of you when you complete your loan application and for us to get your loan approval.
Let’s start with are some common statements I hear from borrowers regarding the confusion between being an employee or self employed:
“I own the company but I pay myself a weekly check so I am a W2 employee and not self-employed.”
“I work for Anytime Furniture 40 hours a week plus 6 hours on Saturdays but I get a 1099 at the end of the year because I am in sales but, I am not self -employed.”
“I work the front desk at Anytime Realty Monday through Friday, 9 to 5. I have my real estate license so the Broker pays me as a 1099 Realtor. But I get $10 an hour.”
“I am a bartender / Waiter and make great money but don’t claim my tips”
Here when your applying for a mortgage loan I have to treat you and be non-judgmental based on how you file your tax returns. I have qualify you based your income type as listed in the HUD Handbook. So, if you own 25% of a company you are self-employed. Those who are self-employed, commission based, or receive tips, you will be required to prove a two years history of receiving that type of income.
If you work and get paid 1099 even if you’re an employee of a company I will have treat you as self-employed individual.
These examples are in my non-legal opinion are contradictions to the IRS and Department of Labor rules. These rules are set to protect you the individual. This is hard for some people to understand, who need to maintain employment. However, that does not give an employer the right to abuse you. If you’re the owner of a company and you are paying yourself a weekly pay check, you are still self-employed and are doing it correctly.
Remember when you are self-employed, you need to make sure you separate your personal bills and checking accounts from your business bills and checking account. Once you co-mingle funds between personal and business it all becomes personal funds and this may have a major negative impact of your financial position. You should seek the advice of a CPA or an attorney as in regards to your exposure and liabilities.
We want to help you the best we can to attain home ownership. We have rules we must follow so please don’t get upset with us because your situation has been abused or manipulated by someone else.
Ask questions, seek proper professional advice, ask the IRS or the department of labor, you may find out they are not the bogie men they are made out to be. In all of my years of being self-employed I found them to be very accessible and helpful more so then being the bogie man. Get proper guidance, talk to licensed professionals with good reputations, get the right information and we will see you at a happy closing table.