I feel as though I have been duped. I was hired by an organization after agreeing on an hourly wage. Subsequent to my first pay check I was informed that the company was going to be starting "payroll", and until that time I would be considered a consultant, or outside contractor. I did not fully understand this, yet it seemed wrong. I began looking for different job. In the month I was employed I made roughly 5000.00. Towards the end of that month I was informed that I would be receiving a 1099.

I am aghast at the significant hit I have taken on my taxes. My return without the 1099 was roughly 6700. :) When I figure the 1099 it drops to 4900, or thereabouts. :mad::confused:

What am I doing wrong?
Is this legal?
There has to be something that I have figured incorrectly, to lose most of my EIC, and child tax credits...

Does anyone have any advice?

By getting 1099-misc, you will end up paying about 7.6% more than what you would have paid with W2.
With 1099-misc you pay SE tax at 15.3% while with W2 you pay FICA taxes at 7.65%. There are many advantages of getting 1099-misc; you can directly deduct your job related expenses.

How you will treat the 1099-Misc income, read: Your U.S. Tax Return: W2 vs 1099-Misc: Employee vs Independent Contractor. (http://taxipay.blogspot.com/2008/03/w2-or-1099-employee-or-independent.html)

Agreed! You will have to file Schedules C and SE with a Form 1040 to account for the Form 1099-MISC you received, but you can also claim some significant work-related deductions (such as business use of your cell phone) that are not available to the average W-2 employee.