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Is your worker a 1099 contractor or a W2 employee?

W2 or 1099

It's important to classify workers as employees or independent contractors correctly, since your responsibilities will vary depending on what type of workers you use. For W2 employees, you will need to withhold taxes and pay payroll taxes, and file a form W2 at the end of the year. For 1099 contractors, no withholding is required, but you will need to provide the contractor and IRS with a 1099-MISC form.

The IRS (and state agencies) are quite strict regarding the differences between a W2 employee and a 1099 contractor, and penalties for mis-classification can be steep. The questions below can help give you guidance, but the only way to know for sure is to file a form SS-8 with the IRS:

  • Will the work be performed on company premises?
  • Will the individual work only for you?
  • Will you provide tools and/or training for your worker to do his or her job?
  • Do you control the hours the person works?

If you answered "yes" to any of the questions above, odds are you're hiring a W-2 employee and not a 1099 independent contractor.

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Infographic by Column Five