Employee Classification: How to Switch from 1099 to W-2

Congratulations on bringing another member onto your team! As an employer, you might need to figure out how to switch from 1099 to W-2. You would help an independent contractor make this transition if you wanted to make them an employee. If you are hoping to bring another full-time employee onto your business team, this article will provide a tax perspective on that transition.

Making the Switch from Independent Contractor to Employee

Steps to transition a worker from 1099 independent contractor to a W-2 employee:

1. Verify classification of worker
2. Alert worker of classification change
3. Create an employee file with their information
4. Add employee to payroll
5. Provide employee with a W-4 form to be completed upon hiring
6. Provide employee with a W-2 form by January 31st to be completed before tax deadline

The employee will undergo a reclassification of tax status. When you once would have issued a 1099 form, now you will now issue a W-2 form. After adding the new employee to your payroll, you must provide the tax forms that reflect their new classification: W-4 form for personal information and tax deductions, and W-2 form for tax and wage report.

It is crucial to follow these steps carefully. Make sure to document the entire process and communicate clearly with your employee. An attention to detail and clear records of the transition could help you avoid misclassification issues.

Proper Employee Tax Classification

An instance in which you might need to know how to switch from 1099 to W-2 would be if you hired an independent contractor for a short-term project, and then you rehire them on a consistent basis. This contractor’s work will transition into your sphere of control, and their tax classification will change to a W-2 employee on your payroll with a benefit plan.

It might benefit you to dig deeper into employee classification if you are figuring out how to switch from 1099 to W-2. The guidelines provided by the IRS are not completely clear, and it is important to properly classify your workers. Classification is especially prudent when changing an employee from one tax status to another. Misclassification of an employee can result in legal fees and other ramifications for your company.

AMS Can Help

Advanced Micro Solutions has provided another article if you are hoping to convert a W-2 employee to a 1099 independent contractor. For both of these transitions, the recommendation is to wait until the end of the current tax year in order to keep filing organized and clear. This consistency will help keep your tax filing clear and easy.

At AMS, we want to help you bring another employee onto your team. A W-2 employee can add stability and loyalty to your company. The W2 and 1099 filing tool supports you as you figure out how to switch from 1099 to W-2. This responsive tax software can support employees with a W-2 form or independent contractors with a 1099 form.