Trying to figure out whether to give a consultant 1099 vs W-2 designation? At AMS, we can help you learn about that decision and file the appropriate tax forms.
A consultant has some sort of expertise in a given field, like IT, human resource, operations, management, or strategy. You might hire a consultant if your company needs expertise on a certain project, or even an audit or restructuring of the company itself. A consultant is essentially a strategist who can provide your company with recommendations, opinions, or analysis.
Are Consultants Employees or Independent Contractors?
There are two tax categories for consultants. They can be paid and taxed as an employee with a W2 form, or as an independent contractor with a 1099 form.
- A W-2 form reports the wages paid to the employee and withholds the appropriate taxes.
- A 1099 form reports wages paid to the independent contractor or consultant without withheld taxes. In this case, a 1099 independent consultant would report their own taxes.
The difference between these two forms lies in what kind of work the consultant does, and how involved you or your company is in the consultant’s work. The IRS recommends using financial and behavioral considerations to decide, as well as considering the type of relationship.
A good rule of thumb for assigning a consultant 1099 vs W-2 forms is asking these questions: How long will the consultant work here? How involved am I, the employer, in the consultant’s work? Does the consultant receive employee benefits?
Most consultants receive 1099 forms because they work for multiple companies, while an in-house consultant would receive a W-2. Check out the case study below for more information on this distinction.
Case Study: IT Consultants
The IT (information technology) industry is filled with consultants. Companies will hire IT consultants to install new software, fix bugs, or streamline existing tasks. Due to the project-based nature of IT work, this field has many consultants. IT consultants who work in this capacity are considered 1099 independent contractors. The 1099 form covers miscellaneous forms of income that the W-2 form does not. Oftentimes, the nature of IT consultant work prompts a 1099 because the IT consultant will work with multiple companies within a tax year.
On the other hand, some companies have IT consultants that work for the company full-time, with benefits and oversight from the employer. In-house IT consultants are available to help troubleshoot day-to-day tech issues and help with bigger projects. These consultants are usually hired as employees of the company. In this case, and in the case of in-house consultants in any industry, the worker would be paid and taxed as a W-2 employee.
AMS Helps File Consultant 1099 vs W-2 Forms
Whether you choose to have an in-house consultant or to hire consultants on a case-by-case basis, AMS can help you file the right tax forms. Our W-2 and 1099 Forms Filer keeps your forms organized once you figure out whether a consultant 1099 vs W-2 form is best. The system can support up to 99,999 employees. If you need to support your company by hiring several consultants, the AMS W-2/1099 Forms Filer has your back.