1099 vs. W-2: Difference Between Employees & Contractors
In today's bustling job market, you might need to hire an employee or two. Do you know what kind of employee you want to employ? A 1099 contractor or W-2 employee?
Are you confused by this question? Or unsure of the difference between a 1099 contractor vs. a W-2 employee? The IRS views them differently therefore, your responsibilities as the employer may differentiate as well.
Read on for advice about the difference between the two forms of hiring and filing.
1099 Contractor vs. W2 Employee
As a business owner, there comes a time you will more than likely need to hire new employees. This in turn, brings up the question of what type of employee you need to hire. 1099 or W-2? This matters to the IRS and filing correctly.
Your responsibilities as an employer vary depending on which one you hire. A 1099 contractor is a self-employed independent contractor, who has agreed to certain terms of employment. They are responsible for paying their own taxes to the IRS. Whereas a W-2 employee is also employed by you and you pay their wages, make tax deductions and provide them a W-2 form at the end of the year.
What Is a W2 Employee?
A W-2 employee is what most businesses hire. They are the traditional salaried or hourly employees. You hire them and pay their wage. They have the option of participating in employee benefits you provide. A W-2 employee will work based on the hours and time schedule of your business.
As a business owner, you're responsible for taking out social security and medicare taxes. You might also contribute to a pension or retirement plan on their behalf.
At the end of the year, you provide the employee with the IRS mandated W-2 form that shows their income and taxes and withholdings were taken from their pay.
What Is a 1099 Contractor?
A 1099 contractor, sometimes called an independent contractor or 1099 worker, is another option for your business. A 1099 contractor is hired to complete a specific task under a contract or agreement. Often an independent contractor specializes with a specific skill they provide for you.
This independent contractor is self-employed and works as a freelancer, consultant, or business in and of themselves that provides a specific service. They get paid for the work they do, yet you don't withhold income taxes from their pay like the W-2 employee.
At the end of the year, you provide the IRS 1099 formfile-taxes-without-a-1099 to declare income that's been made by the contractor from your business.
Which Is Better for Your Business, Hire an Employee or a 1099 Contractor?
As you consider tips for hiring an employee, you might wonder which is better to hire, a traditional W-2 employee or a 1099 contract employee. The answer will depend greatly on your business needs. It might also depend on the duration that you need the help.
Evaluate your own business plan and consult with your tax accountant to decide which route is best for your business.
Contact a Tax Professional
If you're ready to hire an employee, it's smart to understand the differences between a W-2 employee and a 1099 contractor. Get advice about hiring an employee from a tax standpoint and consider your business needs.
Are you interested in learning more about which type of employee might benefit your business overall? Book a discovery call with the Core Group today to learn more about the impact of employees on your business tax strategy.