1099 vs W2 Choosing the Right Tax Form

1. 1099 vs W2: Choosing the Right Tax Form Towards the end of the financial year, employers must issue their employees W2s and 1099s, the different tax forms used to deduct payroll taxes. However, how to distinguish which forms are to be issued for whom? Trying to figure out when to use 1099s and W2s can be confusing and overwhelming but it’s vital that we have an elementary understanding of how to classify workers.

2. 1099 vs. W2: Employees and Independent Contractor Self-employed are independent contractors that are classified as 1099 employees while a W2 employee receives a regular wage and employee benefits. Contractors are flexible to set their own hours and use their own tools and maybe working for more than one business. Since they are self-employed, employers cannot withhold taxes from their paychecks and in fact, these contractors pay their own taxes. On the other hand, an employee is hired by an employer under an employment agreement who holds the right to withhold taxes from the employee’s wages, train them, payemployment taxes for them, and may provide benefits such as health insurance and afterlife benefits. And hence their work type and work hours are completely controlled by their employers. Contractors and Employees There lies a fine line between 1099 and W2 workers but to understand this classification better let us look at how IRS (Internal Revenue Service) classifies workers. In order to determine the degree of dependency or control between employee and employer we need to ponder on the below pointers: •Behavioral This determines if the employer has control over how the job needs to be done, how many hours, and which hours to deploy? If yes then the worker will be classified as an employee and, if the worker need not be directed then it is a contract. •Financial Does the employer specify the tools to be used to accomplish the business goal or are the expenses reimbursed, fixed method of payment, or any additional benefits are provided? If yes then the worker is an employee and a contractor otherwise.

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