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, such as:
- IT (information technology)
- Human resources
- Operations
- Management
- Strategy
You might hire a consultant if your company needs expertise on a certain project, or even if there is an audit or restructuring of the company. A consultant is essentially a strategist who could potentially 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 you can report them as an independent contractor with a 1099 form.
A W-2 form:
- Reports the wages paid to the employee
- Withholds the appropriate taxes
A 1099 form:
- Reports wages paid to the independent contractor or consultant
- Does not require the employer to withhold any taxes (the independent consultant reports 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 that employers use financial and behavioral considerations to determine a worker’s classification. An employer should also consider the type of relationship with their worker.
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 since they work for multiple companies while an in-house consultant would receive a W-2 form. Take a look at the case study below for more information on the distinction.
Case Study: IT Consultants
The IT industry is filled with consultants. Companies will hire IT consultants to:
- Install new software
- Fix bugs
- Streamline existing tasks
Due to the project-based nature of IT work, the field has many consultants. IT consultants who work in this capacity are regarded as 1099 independent contractors.
A 2025 study conducted by MBO Partners estimated that over 72.9 million Americans are a type of independent contractor, amounting to nearly half of the country’s workforce.
Using a 1099 form covers miscellaneous forms of income that a W-2 form does not. The nature of IT consultant work often prompts using a 1099 form, 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 can help troubleshoot day-to-day technology issues and/or help with bigger projects. These consultants are usually hired as employees of the company. In the case of in-house consultants in any industry, the worker would be paid and taxed as a W-2 employee.
Frequently Asked Questions
- Can payroll software handle contractor payments and issue 1099 forms? – Sort of, but a small business owner needs to look specifically for a complete database system that lets them generate and issue 1099 forms, as well as W-2 documentation.
- How do I report income from a consulting service on a 1099 form? – Make sure that you issue a Form 1099-NEC to a consultant service that you paid $600 or more to in the last tax year. Make sure that you understand the types of workers and businesses that must be classified specifically for providing you with consulting services.
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’ 1099-etc software can help you file the right tax forms. Our base W-2 and 1099 Forms Filer program keeps forms organized once you determine whether using 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, our W-2/1099 Forms Filer has your back. Get started today by downloading our free 1099-etc Demo software.