When Does Moving from W2 to 1099 Make Sense?

As an employer, you likely know the difference between a W2 and a 1099 worker, but you may not know what moving from W2 to 1099 entails. The IRS lays out clear distinctions between the two types of employees to ensure 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. No matter which types of employees you hire, a quality tax software helps you easily complete taxes.



Reasons for Moving from W2 to 1099

Employers can encounter different reasons which prompt them to reconsider the status of their employees. Depending on the circumstances, businesses might need to hire more W2 employees or transition their previously W2 employees to 1099 contractors. We have provided some scenarios in which it might make sense for employers to consider moving from W2 to 1099 for some or all of their employees.

  • Downsizing – If your business needs to downsize, you will likely assess the size of your workforce. It is possible that you have too many salaried employees on your payroll that your current operation cannot support. In this case, you may opt to transition some of your W2 employees to 1099 contractors. This switch allows 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 may hire their 1099 contractors as W2 employees overtime as they grow the capacity to maintain the workers on a payroll. With more people becoming independent contractors, small businesses starting up are likely searching for workers who can do a job right away and already be trained to do so. Once your business is established, you may seek more control over how your workers work. Hiring your 1099 contractors on as W2 employees may be a good decision to start building your workforce.
  • Nature of Work Needs – 1099 contractors are suited for short term projects that require specific skills. However, if your business continually hires contractors for work that is essential to your operation, you may consider hiring a W2 employee who can perform that work. Hiring 1099 contractors over long periods of time is not cost effective. So, transitioning 1099 contractors to an official W2 employee makes fiscal sense.


AMS Can Help Moving from W2 to 1099

Filing both W2 and 1099 forms for a tax year can be tricky. Misclassification of employees has serious consequences for employers who fail to correctly file for their employees. AMS 1099 filer with W2 support software is the ideal tool for employers who hire a mix of W2 and 1099 employees and who plan to switch the status of any of those employees. Our software’s easy data entry capabilities keep the filing process straightforward. You can create individual files for each of your employees to ensure 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.



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.