Which Tax Form to Give Your Independent Contractor: 1099 vs W-2

Does it make sense to provide an independent contractor 1099 vs W-2 form? In this article, we at AMS will help you figure out worker tax classifications and when to hire an independent contractor.



Classifying 1099 Independent Contractors and W-2 Employees

Determining a worker’s tax classification usually comes down to the nature of their work, and the role you, as the employer, plays in that work.

There are three categories that the IRS uses to determine if a worker should receive a W-2 as an employee or a 1099 as an independent contractor: behavioral, financial, and type of relationship.

  • Behavioral: You are able to restrict a W-2 employee from working with other businesses and/or competitors. You are not able to restrict 1099 independent contractors from working with possible competitors. How much control do you want to have over the independent contractor’s work?
  • Financial: Consider the financial implications of this working relationship. As an employer, you are responsible for withholding taxes for a W-2 employee. A 1099 independent contractor is responsible for their own taxes. You are responsible for providing W-2 employees with benefits like paid time off and health insurance. What financial considerations do you make for this independent contractor?
  • Type of Relationship: The type of relationship is usually denoted by a written contract, employee benefits, or permanency of the relationship. Have you defined the type of relationship your company has with this independent contractor?


When Does It Make Sense to Hire a 1099 Independent Contractor?

Some companies do not struggle with whether to give an independent contractor 1099 vs W-2 because they prefer to hire W-2 employees exclusively. These full-time workers receive benefits from the company and the company handles payroll tax withholding. The employer has more control over employee time, how an employee completes their work, and whether or not an employee can work with other companies.

However, there are several instances in which a 1099 independent contractor makes more financial and business sense:

  • You need help on a short project with a determined time line or end goal.
  • You cannot afford to provide a worker with employee benefits.
  • Your industry experiences increased employee turnover.
  • You are letting a worker do a trial before hiring.


AMS Software Supports Different Employee Classifications

How you classify an independent contractor within your company is up to you, and making your tax filing experience easier is up to us here at Advanced Micro Solutions. The W-2 and 1099 filing software can support up to 99,999 employees/recipients per payer. You can file a W-2 or any 1099 form through this easy, supportive tax software. The data is accessible and we electronically file your tax forms to the IRS/SSA at the end of the tax year.

When you decide to give the independent contractor 1099 vs W-2, remember that you can transition the worker to a different classification. You can switch an independent contractor from a 1099 status to a W-2 employee(hyperlink to “how to switch from 1099 to w2). AMS tax software gives you a strong tax filing foundation so that you can classify your employees for maximum success.


Software Solutions from AMS

Our W-2 and 1099 Forms Filer is our only required platform. From there, users pick the services they need. Choose from the tools below to build out your customized accounting software.