#TaxTipThursday: The Difference Between 1099s & W-2s

Form W-2 and Form 1099 (1099-MISC to be exact) can, understandably, be easily confused during the filing process. You paid someone for work, but on which form do you report that to the IRS? Well, the simple rule is 1099-MISCs get filed for independent contractors while W-2s get filed for employees, but differentiating between your workers’ classifications can get a little more complicated.

Form 1099-MISC
Form 1099-MISC, Miscellaneous Income, is filed for anyone who performed a service for your business and was paid $600 or more for their work. You also file Form 1099-MISC to report prizes won, rent payments, fishing boat proceeds, and attorney fees of $600 or more.

Form 1099-MISC is due

  • -to your recipient(s) by January 31,
  • -to the IRS by January 31 if paper filing, and
  • -to the IRS by March 31 if e-filing.

Form W-2
A Form W-2, Wage and Tax Statement, is filed when you need to report wages paid to your employees. Your employees will also have income, social security, or Medicare tax withheld reported on their W-2 form.

Form W-2 is due

  • -to your employee(s) by January 31,
  • -to the IRS by January 31 if paper filing, and
  • -to the IRS by January 31 if e-filing.
 

Independent Contractors vs. Employees
If you’re unsure of whether you’ve hired someone as an independent contractor or an employee, you can submit Form SS-8 to the IRS, and they’ll determine the status based on the information you provide. Bear in mind that this form could take up to six months to process and be returned. So since we have roughly two weeks left to file and not six months, your other option is to think about how you’d answer these questions:

  • -Does the company control or have the right to control what the worker does and how the worker does his/her job?
  • -Are the economic aspects of the worker’s job (how the worker is paid, expense reimbursement, who provides tools/supplies, etc.) controlled by the company?
  • -Are there written contracts or employee-type benefits? Will the relationship continue and is the work performed a key aspect of the business?

If you find yourself leaning on the “yes” side for these questions, you’ve probably got a real, bona fide employee on your hands. If not, it’s more likely you’re dealing with an independent contractor.

Stay tuned for more #TaxTips with TaxBandits, and if you have any questions, you can give us a call or send us a live chat or email. We’re available on the phones and chat lines Monday through Friday, 9:00 a.m. to 6:00 p.m. EST, at 704-684-4751 and through our website. You can email us anytime at support@TaxBandits.com.

 

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