W-2 or 1099: How Should You Report Your Workers’ Earnings?

Tax season has rolled around again — time to send your workers’ earnings reports to the IRS and the workers themselves. Which workers get which forms? Here’s what you need to know.

Employee or Independent Contractor

  • Use a W-2 for workers in your full- or part-time employment.
  • Use a 1099-Misc for freelancers and independent contractors.

Who Qualifies as an Employee

According to the ITS, the worker’s job situation must meet the following criteria:

  • Has hours or a set schedule assigned by you, the employer
  • Gets trained by the company in a certain method
  • Completes any and all work assigned to them by the employer
  • Is provided the tools and materials necessary to do the work
  • Has only one employer (usually)

Who Qualifies as an Independent Contractor

These workers are in business for themselves and contracted by you on a project basis.

Independent Contractors:

  • Set their own schedule.
  • Use their own personal method for doing the work
  • Accept tasks on a case-by-case basis, and can turn down offers of work
  • Supply their own tools
  • Have more than one client

It’s not necessary to meet every qualification on the list to be classified as an employee or an independent contractor; but there should only be one or two exceptions.

How Taxes Are Collected

  • For W-2 employees, you deduct payroll taxes from their paycheck and pay those taxes to the government.
  • For 1099-Misc contractors, they are responsible for calculating and paying their income tax.

Minimum Earnings Reportable

  • For W-2 employees, there is no minimum. All wages, salaries and tips, no matter how small, must be reported.
  • For 1099-Misc contractors, the minimum is $600 total for the year. If you paid them less than that, you don’t need to send a 1099.

When 1099s and W-2s Are Due

  • W-2 forms must be filed with the IRS and received by the employee no later than January 31.
  • 1099-Misc forms must be filed with the IRS by January 31 and received by the contractor no later than February 15.

In some cases, such as having more than 250 W-2 forms to file, you may be required to file electronically. If you have questions about this or any other aspect of tax reporting, your Xendoo tax expert is there to help you sail through the paperwork.



This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.


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