How will this affect the tax? The main difference between a 1099 contractor and a W2 employee is in the payroll and social security/medicare tax requirements. But these tax requirements are federal and this is a CA only decision.
Bingo. The IRS uses a different test, so workers could end up as "employees" for the purpose of state law and "contractors" for the purpose of federal tax withholding.
It doesn’t make a difference if everyone (including the government) agrees on the classification in advance.
It makes a huge difference if you can retroactively change the terms of the original agreement (“because I wasn’t classified right”) and get the other party to have to pay you back for (half of) those taxes.
