What Qualifies as a 1099 Employee? A Guide

Knowing what qualifies as a 1099 employee is more complex than determining how many hours someone works or how long they have worked for you. Any sized business may hire employees and short- or long-term contractors. Understanding the important distinction between employees and contractors influences the tax forms that you use as you onboard a worker. Employers have different prerequisites that lead to them hiring a W-2 employee or 1099 independent contractor. The Internal Revenue Service has clear and consistent guidelines for everyone. All businesses must follow the same IRS-imposed rules as they classify each of their hires.

Advanced Micro Solutions offers trustworthy accounting and payroll management tools for small businesses. Our W-2/1099 Forms Filer is a complete database system with optional modules to add onto the software. Employers determine who they intend to hire and once they know what qualifies as a 1099 employee can access all relevant employee features. Review our guide to better ensure a straightforward transition as you onboard workers.

 

W-2 Employee vs. 1099 Contractor

Determine whether an individual is an employee or an independent contractor early in the hiring process. Consider the relationship that you, as the employer, have with each type of worker.

Employee – An employer-employee relationship does not require a specific label. An employee works full time or part time for a business. The Internal Revenue Service classifies employees as anyone who performs services with specific, employer-designed conditions. You control what an employee does and the way that they complete their services. Consider what qualifies as a 1099 employee by considering three categories: Behavioral control, financial control, and the type of relationship. The categories offer insight into how much control you have as an employer and how much autonomy your workers possess.

Independent Contractor – The role of an independent contractor takes many forms. Classify a worker as a contractor if they belong to independent trade, business, or profession. The workers generally offer their services to the general public. Ask yourself if you have the right to control or direct the end result of a worker’s services. An individual is not an independent contractor if you control what they do or how they do it. You must correctly identify these workers so that they all contribute to the IRS’ self-employment taxes.

You may still have questions about what qualifies as a 1099 employee. Fill out and submit Form SS-8 to the IRS. The IRS will review the outlined circumstances and make a final determination about any worker’s classification status.

 

Consequences of Misclassifying Employees

More and more companies leverage independent contractors nowadays. Maintain compliance in your business as you hire any individuals by knowing what is at stake. Keep in mind some of the following consequences that your business may encounter as a result of misclassifications.

Workers Compensation Violations – Your business will encounter penalties if it violates state workers compensation insurance laws. You will also face liabilities for all of the unpaid workers compensation premiums.

I-9 Violations – Understand what qualifies as a 1099 employee so that you always comply with federal I-9 requirements. Verify an individual’s identity and their employment authorization in the United States with Form I-9. Keep your completed and accurate I-9s for all of your employees. You must also maintain I-9 forms for any of the common law employees that you previously misclassified as independent contractors.

Wage Law Violations – Misclassifying your workers can result in you failing to pay overtime and minimum wage. Avoid criminal penalties and liabilities for back wages by not accidentally classifying your employees as independent contractors.

Tax Trouble – Stay compliant to avoid incurring any fees due to not withholding the proper state and federal payroll taxes. Employers who misclassify their workers will also fail to make their matching Medicare and Social Security tax payments.

 

Use AMS After Determining What Qualifies as a 1099 Employee

Take your time as you review each hire to ensure that you properly classify them. You will fill out paperwork for every type of worker. Avoid penalties by confirming that it is the correct paperwork on the first try. Advanced Micro Solutions can assist you. Pair up our W-2/1099 system with our Software Generated Forms module. Users generate the necessary forms and enter their data onto an entry screen that resembles the traditional IRS form.Our software supports W-2, W-3, and many types of 1099 forms. Classify your workers and our program streamlines the rest. We support up to 99,999 employees or recipients per payer. Test our free 1099-etc Demo to explore our features. Call (405) 340-0697 to speak with our customer support and ask any questions.

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.