1099 or W-2?

You’ve got your coffee, you’ve got your company’s previous year’s tax information, and you’ve sat down with ExpressTaxFilings to quickly and easily create and e-file your company’s tax documents. But wait! Which form are you supposed to supply to each of your workers? 1099-MISC? W-2? W-3? 8809? 8675309??

(FYI: Just focus on the 1099-MISC and the W-2 for now. A W-3 should be submitted to the IRS if you send out W-2s; 8809 is an extension form; and “8675309” is not an IRS form but a catchy eighties tune from Tommy Tutone.)

The main question to ask when deciding which form to send is this: Is the worker considered an employee or an independent contractor in the eyes of the Internal Revenue Service? The simple answer is that an employee should receive a W-2 while an independent contractor should receive a 1099-MISC.

But, as we all know, dealing with the IRS is rarely ever that simple.

If you’re unsure of whether you’ve hired someone as an employee or an independent contractor, you can submit Form SS-8 to the IRS. Based on how you fill out this form, the IRS can determine which category your workers fall into. Keep in mind, however, that this form could take up to 6 months to process and be returned.

Since you probably don’t have six months to wait, you can also determine types of employment by assessing the degree of control and independence each worker has over the job he or she has been assigned. Facts that provide evidence of the degree of control and independence fall into three categories:

  • Behavioral Control. This refers to whether there is a right to direct or control how the worker does the work. A business has the right to direct and control an employee regarding how their work is done but does not have to direct or control the way an independent contractor completes a job.
    The Big Question: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  • Financial Control. This refers to whether or not the business has the right to control the economic aspects of the worker’s job. In the case of employees, the company generally controls these variables while an independent contractor will be in charge of these for him/herself.
    The Big Question: Are the economic aspects of the worker’s job (how the worker is paid, expense reimbursement, who provides tools/supplies, etc.) controlled by the payer or the payee? 
  • Type of Relationship. This refers to how the worker and company perceive their relationship to each other. Written contracts, employee benefits, and work permanency can provide insight into identifying the relationship. Employees generally require more written contracts and employee benefits, and they’re a more permanent feature around your business than independent contractors.
    The Big Question: Are there written contracts or employee type benefits (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? 

Factors which are relevant in one situation may not be relevant in another, so it’s important for businesses to weigh all of these factors when determining whether a worker is an employee or an independent contractor.

Once you’ve assessed the status of your workers, you can accurately determine which form needs to be sent to them so that they can properly file with the IRS. And with features like a Bulk Upload and Error Check, ExpressTaxFilings can help you file your forms without any headaches. We’ll even print and mail the forms to your recipients for you!

If you have any further questions or need assistance e-filing with ExpressTaxFilings, please feel free to contact our support team of live professionals at our office located in Rock Hill, South Carolina. You can call (704) 839-2270, Monday through Friday from 9 a.m. to 6 p.m. EST, e-mail us 24/7 at support@expresstaxfilings.com, or live chat with us at www.expresstaxfilings.com.

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