Working as an Independent Contractor
Most mystery shoppers are not hired as employees by the companies they perform services for. Instead, they are independent contractors who contract our their services.
In the U.S., these kinds of workers are sometimes referred to as “1099 contractors,” which refers to the Internal Revenue Service (“IRS”) form they are given indicating how much they were paid by the company they signed the contract with. A 1099 contractor is considered self-employed for income tax purposes. If you make more than $600 in a year, then you will be given a 1099 form.
When you work as an employee for a company, your employer will withhold income taxes on your behalf. The employer is also responsible for paying half of the Social Security and Medicare taxes as well. The self-employed person must pay for both portions him or herself, which works out to 15 percent of net income. This amount calculated on the person’s projected income, and is remitted on a quarterly basis.
A person who is working as mystery shopper on an independent contractor basis is able to deduct reasonable expenses incurred for business purposes. If you bought a computer and are using it for business purposes, then this is a business expense. You may also be able to deduct a portion of your vehicle expenses if you are using it to drive to and from assignment locations. Home office expenses can also be deducted at tax time.
The contractor gets paid for completing assignments on behalf of his or her clients, not on a salaried basis. There are no paid vacation days or paid time off if the contractor becomes ill. Minimum wage laws don’t apply to a person working as a contractor, either, which means that they may end up being paid less than a person who is an employee.
With an independent contractor relationship, though, the contractor is not limited to signing up with only one company to perform mystery shopping services. One way to get access to more potential assignments is to sign up with several mystery shopping companies. As long as you don’t reveal any confidential information about your clients to a rival company, you can work with more than one mystery shopping service provider.