Congratulations on bringing another member onto your team. As an employer, you might need to figure out how to switch a new employee from 1099 to W-2.
You would help an independent contractor make this transition if you wanted to make them an employee. If you are hoping to bring another full-time employee onto your business team, we will provide you with a tax perspective on that transition.
Making the Switch from Independent Contractor to Employee
Steps to transition a worker from 1099 independent contractor to a W-2 employee:
- Verify classification of worker
- Alert worker of classification change
- Create an employee file with their information
- Add employee to payroll
- Provide employee with a W-4 form to be completed upon hiring
- Provide employee with a W-2 form by Jan. 31 to be completed before tax deadline
The employee will undergo a reclassification of tax status. Instead of issuing a 1099-NEC form if you paid them $600 or more in a tax year, you will now issue them a W-2 form. After adding the new employee to your payroll, you must provide tax forms that reflect their new classification:
- Form W-4 for personal information and tax deductions
- Form W-2 for tax and wage report
It is crucial that you carefully follow these steps. Document the entire process and communicate clearly with your employees. Maintaining attention to detail and clear records of any transitions can help you avoid misclassification issues.
Proper Employee Tax Classification
You might need to know how to switch someone from 1099 to W-2 if you hired an independent contractor for a short-term project, then you rehire them on a consistent basis. The contractor’s work will transition into your sphere of control. Their tax classification will change over to a W-2 employee on your payroll with a benefit plan.
It might benefit you to dig deeper into employee classification if you are figuring out how to switch from 1099 to W-2. Accurate classification is especially prudent when you change an employee from one tax status to another. Misclassifying an employee can result in:
- Legal fees
- Other ramifications for your company
Frequently Asked Questions
- Can switching a 1099 contractor to a W-2 employee trigger an audit? – The IRS may see a sudden switch as a red flag, especially if your employee receives both a 1099 and W-2 form in the same year.
- What are the worker misclassification penalties? – There are different types of penalties that depend on an employer’s knowledge and intent behind a misclassification. In 2025, one of the most common tax mistakes is not keeping accurate and complete records so there are no tax filing penalties.
AMS Can Help
Advanced Micro Solutions understands that sometimes businesses need guidance when it comes to converting a W-2 employee to a 1099 independent contractor. For both of these transitions, the recommendation is to wait until the end of the current tax year to keep filing organized and clear.
We want to help you bring another employee onto your team. A W-2 employee can add stability and loyalty to your company. Our W-2/1099 Forms Filer base program supports users as they figure out how to switch from 1099 to W-2. The responsive tax software can help to support:
- Employees with a W-2 form
- Independent contractors with a 1099 form
Download our free 1099-etc Demo software to learn more and get started today.