Should you give an independent contractor W-2 or 1099 form? The answer to this question is almost always 1099 form. Usually, 1099 independent contractors and W-2 employees are two totally different tax classifications. As an employer, you have fewer tax responsibilities for a 1099 independent contractor than a W-2 employee. Let’s look at how workers are typically classified, and some possible exceptions in which an independent contractor might receive a W-2 form.
How Should You Typically Classify An Independent Contractor?
The IRS does provide guidelines for employee text classification. Typically, you either designate a worker as a 1099 independent contractor, or a W-2 employee. The IRS advises you to use financial and behavioral considerations to determine which tax classification your worker receives. You will also consider the type of relationship you share with a worker when you are making this decision. As an employer, you ultimately have much more control over a W-2 employee’s time, how they complete their work, and what that work is supposed to look like. You also provide employee benefits to a W-2 employee. An independent contractor operates much less under your control. You do not provide employee benefits to an independent contractor.
An Exception: Independent Contractor W-2 Employee Hybrid
There is a possible exception to classifying independent contractors as 1099 workers. Perhaps your company calls a temp agency in order to employ an independent contractor for a short-term project. Your company would receive help from an independent contractor for a set amount of time. In this instance, the same boundaries of financial and behavioral control apply between you and the independent contractor as they would in a typical independent contractor relationship. However, that same independent contractor would be on the temp agency’s payroll and would be taxed as a W-2 employee by the temp agency. This is an example of an independent contractor receiving both a 1099 form and a W-2 form from different companies for the same work.
Giving An Independent Contractor W-2 Status
Another exception to the 1099 for independent contractor/W-2 for employee rule would be a classification change. Imagine that you have developed a trusted working relationship with an independent contractor. In this case, you might want to hire that independent contractor onto your team as a W-2 employee. Transitioning an independent contractor to a W-2 employee is actually a fairly common practice. We have provided another article that helps turn a 1099 independent contractor into a W-2 employee. If you choose to make this transition before the end of the tax year, you might have some complications and need to distribute both a 1099 form and W-2 form to that employee.
Resources from AMS
Your company might have its own unique independent contractor W-2 situation, or you might compensate and withhold taxes for your employees in predictable ways. Regardless of how you choose to classify your workers, AMS can help keep your tax information and documents secure. The W-2 and 1099 Forms Filer is our foundational tax software. There are several modules you can add to expedite and enhance your tax experience. Our text software is inclusive of and responsive to your company’s needs. Add the AMS Payroll Software as a module to prepare your own payroll. The E-filer module automatically files W-2 and 1099 forms to the IRS/SSA. AMS is a one-stop shop for your employee and independent contractor tax responsibilities.