Business owners must consider the type of workers they hire sooner rather than later. You may even find it relevant to return to the question: Should I hire a contractor or an employee? There are significant differences between independent contractors and full-time employees.
You may now be wondering how to switch from 1099 to w2 employee. There are a number of ways to know when the timing is best.
The Company Wants More Control
There are certain rules for hiring independent contractors that differ from employees:
- Independent contractors possess more autonomy than employees
- You are only in control of the final result when you hire contractors
- You cannot dictate how the project is completed in the actual process
In 2025, MBO Partners’ study reported 72.9 million independent workers in the United States. The number of contractors was an increase from 72.7 million independent workers in 2024. If you want a more hands-on, collaborative approach, then you might consider re-onboarding a contractor as an employee.
Establishing a Longer Relationship
Independent contractors are known to come and go. If the company is happy with a contractor’s work, keeping them around is reasonable. Re-visiting a conversation about longevity and how to switch from 1099 to w2 status is appropriate if both parties are interested.
Hiring a W2 Becomes More Cost Effective
Both types of workers can be cost-beneficial. They can also become cost-prohibitive. Although a contractor has a set rate:
- They pay for their own benefits
- They pay self-employment taxes
A good contractor knows their value. They will not low-ball if they know that they provide the best quality service. That may mean that their fee exceeds that of a salaried employee. If you use them for multiple, longer projects, it might make sense to onboard them as an employee.
How Do You Make a Contractor an Employee?
You now know when it might be time to make a switch. The next step is learning how to switch from 1099 to w2 on paper.
- Step 1: Identify the recipients of Form 1099. You will need to distribute W-2 forms to these individuals.
- Step 2: Inform the contractor of the change in status. Make sure to record the date and time when you revise these records.
- Step 3: Inform the IRS of the change and keep the receipt. The U.S. Postal Service will stamp the receipt. It will serve as “proof of mailing” for your legal records.
- Step 4: Create a new employee file in your company’s database.
- Step 5: Designate the converted employee as salary, salary exempt, or hourly non-exempt. It will be based on their work and determined responsibilities.
- Step 6: Determine the appropriate pay schedule based on the type of employee.
- Step 7: Ensure the employee submits a Form W-4 and you should generate a Form W-2 for last year’s expenses.
Frequently Asked Questions
- Is in-house IRS tax filing software worth it? – Yes, accuracy and greater efficiency are two benefits of in-house tax filing software whether you hire independent contractors, employees, or some combination of the two worker classifications.
- Is electronic tax filing software worth it? – Yes, most users are happy with electronic filing software allowing them to control how and when they meet tax deadlines. It will eliminate the time that you spend collecting information for an outsourced accountant.
Why Use Advanced Micro Solutions
When navigating how to switch from 1099 to w2 status, you need to stay organized. Software Generated Forms will let you print most forms directly from your printer. Another feature of our software is encryption. Users can email reports directly from W-2/1099 software. The files are encrypted as PDFs and offer trustworthy security. Download our free 1099-etc Demo software today and get started.