Can an Independent Contractor With 1099 Claim Head of Household Wage Garnishment Exemption?
A client wanted to know whether his commissions would be exempt from garnishment as head of household income even though the commissions were paid on a 1099 and the client was considered an independent contractor.
What is the Head of Household Exemption?
Florida Statute 222.11 exempts from garnishment any earnings paid to a debtor that is head of household. Earnings includes compensation for personal service such as wages, salary or commissions.
The head of household exemption, also called the head of family exemption, is one of the most powerful asset protection tools in Florida because it is not limited by the amount of the earnings or the amount of the judgment.
Employee vs. Independent Contractor
Wages, salaries, and commissions are typically paid to employees.
But a business may also contract with independent contractors for their personal services. The business pays the independent contractor when his services are completed and the contractor submits an invoice pursuant to the contract.
Employment compensation is reported to the IRS on a Form W-2, whereas contractor payments are reported for taxes on a Form 1099. Several courts have considered the issue of whether an independent contractor may exempt from garnishment contract payments if he is head of household pursuant to Florida’s wage garnishment exemption.
What Courts Have Decided
Initially, there was a line of decisions that held that compensation to an independent contractor could not be exempt from garnishment because the relevant statute protected only money due to an employee.
Most of these cases were decided prior to an amendment of section 222.11. In 1993, the Florida legislature amended the statute to substitute the term “earnings” for the prior protection of “money or other thing due…for personal labor or service….”
After the amendment, courts continued to deny the head of household garnishment exemption to money paid to a debtor from a business when the debtor controlled whether or not the debtor characterized the payments as W-2 wages or 1099 contract payments. The courts reasoned that if the debtor controlled the amount of earnings, then the compensation was more accurately described as profits from investing in and running the debtor’s business.
Recent Case Law
More recently however, courts have trended toward protection of the independent contractor when his relationship with the paying business resembles an employee relationship.
Courts have allowed a debtor to claim head of household when, for example, the debtor had no ownership interest in the paying business and the debtor’s work was essentially a job or profession—not administration or marketing of a business.
Courts also consider whether the compensation paid to the debtor was based solely on the debtor’s work performance, such as hours or results of work effort, without regard to whether paid as a fixed amount or as commission compensation.
Current Florida law remains unsettled regarding the issue of exemption of contract payments under Florida Statute 222.11. Individual cases will turn on the specific facts involved and the judge’s discretion.
But, people earning money for personal services and paid salary or commissions are not precluded from claiming an exemption of earnings just because their earnings are structured as independent contractor payments and are reported as 1099 income on tax returns.
About the Author
Jon Alper is an expert in asset protection planning for individuals and small businesses.
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