[ad_1]
After the tip of yearly, you’ll want to report your employees’ wages. You should ship a type to the employee and governments. However, which IRS type do you ship? The shape you employ—Kind 1099 vs. W-2—is determined by if the employee was a contractor or an worker.
Kind 1099-NEC vs. W-2
There are two sorts of wage reporting types for the 2 sorts of employees. You’ll use Kind W-2 for workers and Kind 1099-NEC for unbiased contractors.
Kind W-2
Workers are in your workers. You pay them common wages and withhold taxes from their wages. You should report their annual wages and withheld taxes on Kind W-2.
You should full and ship Kind W-2 to workers by January 31. Additionally, you could ship copies of the shape to the Social Safety Administration and the state authorities (if relevant) by January 31.
Kind 1099-NEC
Unbiased contractors are usually not in your workers. You rent them for short-term initiatives which might be unrelated to your core enterprise. You pay their charges, however you don’t withhold taxes from their wages. As an alternative, contractors pay the taxes themselves. You’ll report their annual earnings on Kind 1099-NEC.
You should full and ship Kind 1099 to unbiased contractors by January 31. And, you could ship the shape to the IRS and state tax division (if relevant) by the identical date.
Distinction between W-2 and 1099 employees
So, how do you establish who receives a Kind W-2 and who receives a Kind 1099-NEC? You want to have the ability to inform the distinction between workers and contractors.
You should utilize the three-factor frequent regulation guidelines from the IRS to find out if a employee is an worker or contractor.
- Behavioral Management: Does your corporation management what the employee does, together with how they do their job?
- Monetary Management: Do you embrace the enterprise facets of the employee’s job (e.g., employee funds, expense reimbursements, offered instruments)?
- Sort of Relationship: Do you and the employee have a written contract? Do you present worker advantages (e.g., insurance coverage, sick pay)? Will your relationship proceed after the undertaking ends? Is the work carried out a key a part of your corporation?
In case you’re nonetheless uncertain in case your employee is an worker or an unbiased contractor, you’ll be able to ship Kind SS-8 to the IRS. After you submit this manner, the IRS will ship you a dedication of your employee’s classification.
Do you have to ever give a Kind 1099-NEC and a Kind W-2 to the identical employee?
There are occasions whenever you may have to file a Kind W-2 and Kind 1099-NEC for a similar employee.
For instance, you may rent a contractor to create a selected advertising marketing campaign for your corporation. After the contractor’s work is finished and the marketing campaign is over, you resolve that you simply need to rent an worker who will completely do advertising for you. You find yourself hiring the contractor who did the earlier marketing campaign for you. You’ll need to file each Types W-2 and 1099-NEC for this worker as a result of they had been each an worker and a contractor throughout the 12 months.
Let’s take a look at one other instance. Let’s say you have got an worker who helps create your product. This worker additionally has a snow elimination enterprise. In the course of the winter, you rent the worker to clear your parking zone. Whereas the employee is eradicating snow, they’re a contractor. You’ll file a Kind W-2 for the worker’s wages. And, you’ll file a Kind 1099-NEC for the funds you made for snow elimination providers.
You probably have workers and contractors, take a look at Patriot’s Full Service payroll software program. We’ll file your Types W-2 and 1099s. Begin your free trial in the present day!
This text has been up to date from its unique publication date of April 13, 2015.
[ad_2]
