Employers should know the difference between a W2 and a 1099 worker, but some might not know what moving from W2 to 1099 employment entails. The Internal Revenue Service gives clear details for the two types of employees to ensure that employers do not misclassify their workers.
Employers face legal consequences if they do not properly transition an employee from a W2 worker to a 1099 contractor and vice versa. We will cover what types of circumstances would cause an employer to switch an employee from a W2 to a 1099 classification. No matter the type of employees that you hire, getting quality tax software like Advanced Micro Solutions’ W-2/1099 Forms Filer can streamline how you complete your taxes.
Reasons for Moving from W2 to 1099
There are different reasons why an employer might reconsider the status of their workers. Businesses might need to hire more W2 employees or transition their employees to being independent contractors.
Downsizing
If your business needs to downsize, you will likely assess the size of your workforce. You might have too many salaried employees on your payroll and find that your current operation cannot support it. Transitioning some of your W2 employees to 1099 contractors is one solution. The switch will allow the employee to continue working for the company but in a different capacity and one that may be more affordable for the business.
Starting Up
New businesses might hire their 1099 contractors as W2 employees over a period of time if they want to retain certain workers and incorporate them onto the payroll.
In 2025, the number of self-employed workers in the U.S. has risen to 79.2 million people.
A small business starting out may feel more inclined to search for workers who can do a job right away and already be trained in their field. Once your business is established, you might seek more control over how your workers do specific jobs. Hiring the 1099 contractors as W2 employees might be a good decision when you are ready to start building your workforce.
Nature of Work Needs
Short-term projects that require specific skills is the ideal type of work for 1099 contractors. If you find over time that your business continually hires contractors for work that is essential to your operation, you might consider hiring a W2 employee instead who can perform that work. Hiring 1099 contractors over long periods of time is not cost effective. Transitioning the 1099 contractors to an official W2 employee might make the most fiscal sense.
Frequently Asked Questions
- Can employers switch 1099 contractors to W-2 employees mid-year? – Yes, as long as your worker classification is accurate, you can make the switch. You should just keep in mind that it might lead to scrutiny from the IRS.
- Should I rehire a contractor if I convert them to an employee role? – No, rehiring them is not necessary. After you correctly classify them, you will need to complete all onboarding W-2 paperwork, such as I-9 and W-4 forms.
AMS Can Help Moving from W2 to 1099
Filing both W2 and 1099 forms for a tax year can be tricky. Misclassifying employees leads to serious consequences for employers, especially if they later fail to rectify the mistake. A 1099 software filer with W2 support is the ideal tool for employers who hire a mix of workers with a possibility of switching the statuses of any of those employees.
Our easy data entry capabilities streamlines the filing process. Create individual files for each of your employees to help ensure that you complete the right form for each person. Give our Sales and Information team a call at (800) 536-1099 to ask any question or to set up a free demo.