If the independent contractor is paid $600 or more in a year, it’s necessary to file a Form 1099-NEC with the IRS and provide a copy to the contractor by January 31st of the following year. Due to their self-employed status, they typically don’t receive benefits such as health insurance, retirement plans, or paid leave from the hiring entity. However, they often enjoy more flexibility and autonomy in how they conduct their work. To help employers understand if an independent worker is truly self-employed, the IRS offers guiding questions that can help clarify the nature of the worker’s engagement with the paying company. The IRS calls the following the “common law rules,” which boil down to the degree of control the company has and the level of independence of the worker. While 1099 workers have the freedom to decide how they complete their assigned work, W2 employees do not.

The app connects to your bank account, making it easy to record each time you pay for a business expense. When Keeper’s calculator compares how much of your pay will go towards taxes as a W-2 or 1099 worker, the 1099 income it shows you is your gross income. It doesn’t account for tax write-offs — which can substantially lower the amount you pay in taxes.

employee form

Between 2016 and 2021 alone, the gig economy saw an increase of 31% percent more people enter the industry — equal to about 58 million independent workers. That number is only expected to grow, with the number of U.S. contract employees expected to grow exponentially by 2028 to over 90 million. In addition to the contract, you’ll need to obtain some paperwork from your 1099 employees. There are also optional forms that can help you make sure you classified your contractors correctly.

If you file your taxes with TurboTax, you’ll have the option to record or import your W-2 form right away, and easily search for each of the other Form 1099 options. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. The distinction is important because there are penalties for misclassification. The keys are to look at the entire relationship and consider the extent of the right to direct and control the worker. Finally, document each of the factors used in coming up with the determination.

Benefits

Employers use Form 1099-NEC to record an independent contractor’s earnings. In the same way, the IRS uses the W-2, the 1099-MISC form informs the IRS of how much a company paid a contractor. Companies must file a 1099 form if they spend over $600 on a contractor (wages, rent, or health care payments). W-2 employees are typically taken care of by companies much better than 1099 workers. Employers usually offer certain regular employee benefits like contributing to a retirement plan, providing health insurance, and paying for sick leave.

Per IRS guidelines, employers are required to issue a 1099 to independent contractors who earned more than $600 in non-employment compensation in a year by January 31 of the following year. Form 1099-NEC is sent to the worker or business that performed services, as well as to the IRS. These employees may also be referred to as freelancers, self-employed workers, or independent contractors. If you are a business that is contracting 1099 employees, determine what type of work this individual will do for your business. This will help determine what you as the business owner could be responsible for as far as reimbursement to benefits. Independent contractors have some easy-to-identify benefits for the bottom line.

Can You File W-2 and 1099 Separately?

Whether you have 1099 workers or staff employees, Quickbooks Online can help you manage your whole team by tracking your income, expenses, and tax deductions, as well as processing payroll. An employer must issue a W-2 form to both full time and part-time employees. These employees report to an employer for a fixed amount of hours per week indefinitely. Also, employers provide employees with specific pieces of training and tasks during the work week. By doing this, employers aim to retain employees for the long term and prevent turnover.

We receive compensation from the companies that advertise on Blueprint which may impact how and where products appear on this site. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impact any of the editorial content on Blueprint. Blueprint does not include 1099 vs w2 all companies, products or offers that may be available to you within the market. Whether you’re an employer or a worker, it’s worth giving some thought to 1099 vs W-9 forms and the distinction between employees and contractors. Many people actually receive both forms if they work as salaried employees but also collect other forms of income during the year.