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Do You Need to File a W-2 or 1099 for Your Workers?

Are you a business owner? If so, you know that hiring workers can make your life easier, but it also means that you’ll need to understand how to file taxes for your employees. Specifically, you’ll need to know whether to file a W-2 or 1099 for your workers. This blog post will explain the differences between these two forms and help you determine which is right for your business.

What is the difference between a W-2 and a 1099?

Before looking for employees for your small business, you should understand the differences between 1099 and W-2 employees. In IRS tax code 6844, the terms “1099 worker” and “W-2 employee” refer to the two types of tax forms employers must submit.

What is a 1099 worker?

A 1099 worker is an independent contractor. This means they are self-employed and not considered an employee by the company they work for. Instead of receiving a regular salary or hourly wage, a 1099 worker is paid for each job or project they complete. They are responsible for paying their taxes and providing their benefits, such as health insurance.

Here are examples of workers who’d receive 1099:

  • Gig workers who world temporary jobs, on-demand for rates that employers offer, like wordpress development.
  • Freelancers who set their rates, accept the assignments they want and work on tasks for a short period of time, like wedding photographers.
  • Independent contractors set their rates, pick their assignments and work on a task for a long time, like lawyers offering their services to the general public.

What is a W-2 employee?

A W-2 employee is a traditional employee who works for a company regularly. They are considered an employee of the company and are entitled to the same protections and benefits as other employees.

W-2 employees receive a regular salary or hourly wage and are typically paid regularly, such as weekly or biweekly. The company is responsible for withholding taxes from the employee’s pay and paying the employee’s portion of Social Security and Medicare taxes.

1099 vs W-2: How to decide?

  • The level of control the company has over the worker: If the company controls how, when, and where the worker performs their job duties, they are more likely to be classified as a W-2 employee. If the worker has more control over their work and can set their schedule, they are more likely to be classified as a 1099 independent contractor.
  • The type of work being performed: If workers perform tasks integral to the company’s business, they are more likely to be classified as W-2 employees. If workers perform tasks unrelated to the company’s business, they are more likely to be classified as 1099 independent contractors.
  • The duration of the working relationship: If the working relationship is expected to be ongoing, the worker is more likely to be classified as a W-2 employee. If the working relationship is temporary or project-based, the worker is more likely to be classified as a 1099 independent contractor.

Conclusion

Knowing when to file a W-2 or 1099 for your workers is important. Knowing the difference between the two forms is the key to understanding when each form should be used.

Fortunately, several helpful resources are available to help you make the right decision. For example, plenty of free paystub generator apps that can assist you in determining which form is most appropriate for your workers.