While the common assumption is that workers are either 1099 independent contractors or W2 employees. The question “can you have a 1099 and W2 from the same employer?” is a surprisingly common one. So can employees get W2 and 1099? And, as a business, can you 1099 and W2 an employee?
The simple answer is Yes. The W2 form and 1099 forms are used to report different types of income to the Internal Revenue Service (IRS).
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What Is A Form W2?
W2 is for wages and taxes and records wages, tips, and other compensation that W2 employees receive as well as taxes withheld. When a worker is an employee tax withholding happens before they are paid. This includes a percentage of their wages for federal taxes including income tax, social security, and Medicare taxes, as well as state and local taxes.
The employer-employee relationship is such that the employer is responsible for paying these taxes as well as their own employer contributions.
The W2 form also records other workers’ compensation, and any deferred compensation, for example, retirement planning.
What Is A Form 1099
A 1099 form is used to record income, not from employment. This could be income from dividends, rental income, income from the sale of securities, or even income from a tax rebate. A 1099 form is also used to record income earned from self-employment as an independent contractor or freelancer. Companies will fill out a form 1099-MICS or form 1099-NEC for independent contractors they pay during the year.
The Difference Between Employees and Independent Contractors
A key difference between an employee and an independent contractor is income tax withholding. Independent contractors are responsible for calculating and paying their own taxes. There is a self-employment tax for social security and Medicare taxes and income tax. Freelancers file their tax returns annually but pay estimated tax throughout the year. Employees have to pay the same taxes but money is withheld from their paychecks by their employers.
Other differences between workers such as shifters and full-time employees might be benefits such as health insurance, which is not counted as taxable income under the affordable care act. Generally, self-employed workers need to be more careful of their personal finance, as they are responsible for their own retirement planning, health insurance, and tax payment. They also do not generally qualify for sick pay.
Can The Same Worker Be Issued Both Forms?
Because the forms are used for different types of income, it is possible for an individual to be both an employee and an independent contractor. And, in certain cases, this could mean they get a W2 and 1099 from the same employer.
For example, your receptionist might have a catering company on the side. If you contract them to provide food for a weekend function or bake the office birthday cakes the income would not be part of their usual wages. Equally the type of relationship may change over the course of a year. A worker may start as an independent contractor, who is hired to carry out a specific project, and later become a full-time employee.
An individual may also have multiple W2 and 1099 forms from different employers if they have had multiple jobs or contracts throughout the year. All of these forms will be needed when reporting income at the end of the tax year and any tax withheld will be deducted from an individual’s final tax bill.
Can An Employer Issue a 1099 To An Employee?
This depends on the determination of worker status and why 1099 has been issued. If my employer gave me a 1099 instead of a W2 this would most likely be an error, although it would always be best to check the particulars with a tax professional. If you have been paying payroll taxes and receiving employee benefits then this would be classed as an employee-employer relationship and a W2 should be filed.
Business owners may prefer to employ independent contractors for certain roles as they are not subject to the same labor laws or employee benefits as employees, and business owners are not responsible for employer taxes. There is also less paperwork and tax filing, all of which contribute to lower business expenses. However, it’s important to get worker classification right as there could be fines issued if the wrong forms are filed.
Do 1099 Employees Get A W2?
As mentioned above there is a difference between an employee and independent contractors. If a worker is a 1099 employee they are not technically an employee and should be issued 1099 instead of W2. However, if they receive a pay stub detailing withheld employment taxes and income then they should be classified as an employee, and form W2 should be filed instead of 1099.
How To Go From 1099 to W2
Regardless of whether workers are employees or independent contractors they must still pay taxes and comply with IRS rules. And sometimes in order to comply with the rules, it may be necessary to change a worker’s classification. If you are unsure if a worker should be classified as an employee or an independent contractor you can fill out IRS form SS8.
Often workers may be hired on a contract basis but the work becomes ongoing and tax status needs to be changed. If this is the case, workers must be notified and converted to salaried employees. They will need to fill out form W4. Once contractors become employees they are entitled to the same benefits as other employees. It is important that workers are classified correctly or the business could be fined.