Tax Time Is Right Around The Corner: The Difference Between A 1099 And W2 Employee
There’s lots of confusion surrounding employee classifications. Your employees are either a 1099 or a W2 employee. Here’s the difference.
Tax Day is rapidly approaching. Are you responsible for your employee’s taxes? Well, that depends on if they qualify as a W2 employee or a 1099 employee.
Confused? We can help! Here are the differences between a 1099 and a W2 employee.
What Is A W2 Employee?
A W2 employee is your typical worker complete with a regular salary and benefits. They work for your company according to your business needs. This is the default classification for most employees.
These employees are guaranteed minimum wage based on time worked. As a company, you also withhold Social Security and Medicare taxes as well as pay employer payroll taxes.
A major benefit of hiring this type of employee is that you only need to train them one time. They offer up continuity and free up time that would otherwise be spent training. And if you treat them well, they will remain loyal to your company.
Additionally, you have more control over your W2 employees. You can dictate their schedule, training, and work process. You can also choose what tools, equipment, and methods they use.
But they cost a fair bit more than a 1099 employee. That’s because you have to provide benefits like health insurance and sick leave.
Need to create a form for your W2 employees? Check out this tool by Paystub Creator.
What Is A 1099 Employee?
In contrast, a 1099 employee is an independent, self-employed contractor. (Resources for filing taxes when you’re self-employed can be found online.) You would typically hire a 1099 employee to complete a specific service defined by a written contract. The period during which they work on this service is also defined in that written contract.
While you can determine the nature of the work, 1099 employees have the freedom to choose their own methods and tools. They can also choose where they work and hire their own workers.
This means that they carry more risk when carrying out their jobs. And your oversight is low. This makes them cheap, with a low level of financial responsibility.
Because 1099 employees pay their own employee and employer taxes, it saves on payroll taxes. And they do not qualify for W2 benefits like health insurance and overtime, which means further savings for you and your business.
A 1099 employee can bring in specialized expertise that your business is lacking. They also offer you the flexibility to temporarily move company resources where your current priorities lie.
But while some 1099 employees work on one project at a time, others work for several companies at once. That means their resources may be divided, and it could take them longer to get things done. Also, if your company has special training, you will have to provide it each time you hire a new independent contractor.
1099 Versus W2: Now You Know The Difference!
Now you are ready for Tax Day! So what are you waiting for? Create your W2 employee forms or 1099 forms today!
Need more business life hacks? Bookmark Digital Connect Mag and check back regularly for the latest tips and tricks this tax season!