As an employer hiring independent contractors, like construction workers, you need specific tax forms that differ from those given to full-time employees. The forms needed for 1099 workers include W-9 and 1099. Both forms provide the employer and employee with the correct tax files to ensure compliance with IRS regulations. The main difference between the forms is in files the form and what financial documentation is provided. Understanding the difference between these forms will help make sure you’re ready for tax season.
Who Files a W-9
The independent contractor you’ve hired provides the Internal Revenue Service W-9 form before beginning services. Since the form does not vary once the information has been reviewed for accuracy, it is simple for independent contractors to quickly share with multiple employers. There’s no need to change the form based on employer details.
It contains information such as:
- Full name
- Employee Identification Number (EIN)
- Taxpayer Identification Number (TIN) or SSN
Employer best practice is to ask for the W9 form before the onset of employment.
Who Files 1099?
The employer provides an IRS 1099 form to the taxpaying independent contractor. This document contains income documentation that the hired employee must provide on his or her annual tax returns.
This form is sent to IRS and to each hired 1099 employee.
How do W-9 forms and 1099 Forms Work Together?
A 1099 independent contractor hired to install the flooring of a marketing company’s office building will send the W9 form to the marketing company that includes the EIN number prior to beginning the installation. Then, the marketing company uses the information provided on the W9 report to put together the 1099 tax income file.
The W9 form is necessary for the employer to correctly complete the 1099 form. It is considered best practice for employers to use the information provided on the W9 as it is illegal for an independent contractor to file false information on a W9 form.
The purpose of the W9 form is to provide the employer with proof of independent contractor status. Whereas, the 1099 form provides IRS with information regarding the job performed.
If the marketing agency pays the independent contractor $5,000 for their services, that same amount should be on their 1099 tax filings, as well as on the independent contractor’s filings. In order to verify your tax filings, IRS will cross-reference these records.
On the other hand, W-2 employees do not submit W-9 forms to their employers. They fill out an I-9 upon employment. W-2 employees must pay payroll taxes, and Federal and state taxes are withheld from their paychecks. Additionally, workers’ compensation insurance is paid for W-2 employees while 1099 employees are self-insured.
Who Receives W9 and 1099 Forms?
Independent contractors should provide W9 forms to the employer, but they do not need to be submitted to IRS annually. However, 1099 forms are a required submission to IRS and state tax authorities.
According to IRS, filing 1099 forms are required if the employer has paid anyone:
- “At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- At least $600 in:
- Prizes and awards.
- Other income payments.
- Medical and health care payments.
- Crop insurance proceeds.
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
- Any fishing boat proceeds
- Report direct sales of at least $5000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.”
Is My Employee Properly Licensed?
How do you know if you hire an independent contractor with corrected licensure? Hired 1099 independent contractors must have an EIN, insurance or the proper license to be considered 1099. If they do not obtain the minimum criteria to classify, you could be incorrectly classifying your employee.
Unsure if you have misclassified your workers? Understand the differences between a 1099 and a W-2 employee here.
got1099 is a business reporting company providing business analysis reports to companies re: their 1099 independent contractors We do not provide legal advice. Consult with your attorney relating to any legal issues.
GET AB-5 And CASLB Updates in your inbox