Many employers struggle to understand fully all the tax forms they need to fill in and gather from their employees and contractors. The main issue typically arises when a person changes their status within a company. Employers are looking to avoid employee misclassification, but then get confused when the tax season starts.
What form do you send to your worker? Can you issue different forms, like W-2 and 1099, to the same individual?
If these are questions you resonate with, keep reading our article to learn all you need to know about issuing double tax forms to a single employee.
What is Form W-2?
The Form W-2 is meant for employees who work for a single employer and are on their payroll. They can be salaried or hourly workers and have full-time or part-time contracts. These jobs are typically long-term, and the employer is the one who pays for the employee’s medicare and social security taxes, along with some other taxes, too.
If you’re a W-2 worker, each year your employer will send you this form, which you need to fill in. The employer then needs to file it by January 31st.
What is Form 1099?
Independent contractors don’t work for a single employer full-time. They’re rather engaged in different projects and can have multiple employers at the same time. Moreover, they pay their own taxes, including health insurance and self-employment taxes, for example. Each employer they work for sends them Form 1099, which they have to fill in and return to the employer by January 31st as well.
Be aware that starting from the tax year 2020, independent contractors use Form 1099-NEC to report non-employee compensation of $600 or more from a single employer.
Can one person receive both W-2 and 1099 forms?
Yes, they can. It’s possible that an individual is employed at a company but still performs work as an independent contractor within one fiscal year. There are several scenarios that make this possible:
- You started as an independent contractor but got hired as a full-time employee after a while.
If an employee starts working for an employer as an independent contractor, and gets hired later on, they will receive both 1099 and W-2 forms to report their income when the time comes.
- You’re working on different consulting projects.
According to the IRS, a person can be working for the same company and have different contracts if they’re working, for example, on two different projects.
Here’s an example:
A sales manager who is a full-time employee in a hotel also runs a cleaning service. The hotel may hire this cleaning service for room maintenance, which means their sales manager would perform entirely different work for the hotel and need another type of contract as an independent contractor (a business entity in this case).
The bottom line is - as long as your two roles are completely different, you can have two contracts with the same employer and receive both 1099 and W-2 forms to fill in.
How to tell the difference?
If you’re an employee and are not sure of the type of relationship you have with your employer, check the contract you’ve signed. Cases where the employer considers you an independent contractor, while you believe you’re a full-time employee are not rare, but there can be legal and financial consequences for the employer if they misclassify you. That’s why your title as an employee needs to be clearly defined in the contract.
The 20 Factor test can help both you and your employer determine what kind of employment status will be the most adequate for your business relationship. It was created by the IRS to help employers stay out of risky situations and consists of 20 questions that should be answered with yes or no. In case you have more yeses than nos, you’re probably working with an employee. If you’ve signed them as an independent contractor, reconsider your contract with them.
One person, two tax forms
The IRS confirms that if an employee has two separate roles within the same businesses, for which he or she performs separate work, these roles will be examined as separate relationships with the employer. Therefore, the employee will receive both tax forms to fill in by January 31st.
If you’d like to read more in-depth about the difference between these tax forms, check out this article.