Employees or Independent Contractor … Use different forms
1099, W-9, W-4, W-2 … Oh my!
Employees and Independent Contractors have completely different forms to submit. In a previous post, we talked about the differences between an employee and independent contractor. Now, let’s talk about the forms.
I get asked about these business forms, and the problem is I usually get asked questions when they are coming due and my client is panicked. For small business forms, the key is planning. Create a plan to handle required forms, so when they are due, you only have a few more steps to do instead of what may seem like endless steps.
But if you are prepared or just starting, let’s talk about forms! (Note: We are talking about the 1099-Misc is this post. We will refer to it as the 1099.)
Independent Contractors: Upfront W-9’s
Let’s start with independent Contractors. The two forms to focus on: W-9’s and 1099’s.
The W-9 is the form that you give to the independent contractor when you hire them. You provide a blank W-9 to any new person or company who becomes your vendor.
By filing out the form,
- They are certifying their taxpayer ID number (or social security number).
- They are certifying information about back-up withholding tax. The withholding information is important because if they record they are not exempt from back-up withholding, then you will need to withhold a flat rate of 28% and remit that to the IRS. Yes, you could have more responsibility from that one piece of information.
Where to get the W-9
There are a variety of places to get blank W-9’s, but a simple way is to go directly to the IRS site.
Independent Contractors: Year-end 1099 forms
At year-end you then need to send 1099-Misc forms which shows how much money you paid the independent contractors.
If you have sent / received back the W-9’s throughout the year and have organized the information, you will be in better shape by the time year-end rolls around. If you haven’t, then scramble as quickly as possible and get the W-9’s filled out so you can submit the 1099’s.
Who do you send 1099 forms to?
This is a government requirement. The IRS wants to know who you are paying — i.e. who is receiving income from you. The 1099 forms are sent to vendors you paid . . . it’s not for your customers and it’s not for your employees (which we talk about below).
By requiring 1099’s to be submitted, the IRS is encouraging people/businesses to report all of their income and pay all the taxes they owe. (Remember, you have paid these vendors but you didn’t withhold Income taxes or Medicare/Social Security taxes for them. So, the IRS is looking to these vendors to be responsible for their tax obligations).
Yes, 1099’s are required
In case you are hoping this is optional . . . just know, it is not optional. This is serious for you as a business owner — If you don’t submit 1099’s, you could be fined.
You could be fined for: inaccurate information, late filing, no filing.
Specifically, send 1099 forms to …
Generally the rule is: send a 1099 to independent contractors who have received $600 or more from your business.
There are some exceptions such as some corporations. But make sure you understand the exceptions because you may think something is an exception but it may not be. For example, attorney fees are not an exception — you need to send 1099’s to attorneys. This is the time you could ask a tax accountant if you need clarification. Or, if you want to play it safe: send the 1099’s to all independent contractors who earn over $600. You won’t be penalized by the IRS for sending a 1099 if it isn’t really required.
You also send copies of the 1099’s to
- IRS. (Note: you do not send the W-9 to the IRS.)
- There are different requirements depending on the state. If you are from Nebraska, check out this article where it states: “Nebraska does not require employers to submit Form 1099‑MISC or other 1099 forms to the Department unless Nebraska state income tax withheld is to be reported. “
January 31 for recipients and the IRS.
What independent contractors then do with the 1099 forms
Keep it. That’s right, they don’t have to submit it. BUT they better keep it (and you better keep copies) in case the IRS audits them or you. You have submitted it and they need to declare the revenue. Done . . . unless you or they are audited.
Where to get 1099 forms
See this link for explanations. It discuses filing electronically and manually (read carefully -you may or may not have a choice which method you use.)
If you are able to file manually, you can
- Print copies B & C from the IRS website.
- BUT for Copy A which you mail to the IRS, you need official forms because they have special red ink which allows them to be scannable by the IRS. You can get these blank forms from office supply stores, accounting firms, or you can order them directly from the IRS.
- If you file Copy A manually you need to also send Form 1096.
Employees: Upfront W-4’s
These are forms you need to deal with when you hire Employees.
The W-4 is the form that you give to the employee when you hire them. The employee fills out key information such as their withholding allowance and their social security number that you need in order to run payroll. You then retain the W-4 as part of your records. You don’t need to submit this form to the government.
Where to get the W-4
There are a variety of places to get the W-4, but a simple way is to Go Directly To The IRS Site.
Employees: Year-end W-2’s
You have been processing payroll throughout the year. At year-end it is then time to summarize and report this information. This informaion is summarized on W-2’s.
Who to send W-2’s to
The W-2’s about employees are a different situation than the 1099’s about independent contractors. There are parameters of who to send the 1099’s to. For the W-2’s, send a copy to each employee — even employees who were terminated during the year.
You also submit this information to
- Social Security Administration
- Each state is different for W-2 requirements. If you are from Nebraska, check out the Nebraska website which shows the W-3N summary form that should be filed with the W-2’s.
Employees. January 31.
Social Security Administration (SSA). January 31.
Nebraska. Feb 1.
Where to get W-2’s
See this Link For Explanations. You can submit W-2’s online or manually.
- Just like the 1099’s, if you submit them manually, you need the official forms for the government copy. It’s time to head over to the office supply store or your accountant. Or, if you order early enough, you can order from the IRS website.
- Don’t forget the W-3 which is the summary form.
Summary: Employee & Independent Contractor Forms
Owning a small business is overwhelming at times, especially at year-end with government forms. But these forms are not optional. The government takes them very seriously; you can be fined if you don’t submit them … on time.
A plan can make these tasks better. Gather the information upfront, prepare an accounting system that will store the information, and get forms or online submit access as early as you can. Don’t wait until year-end to start preparing. Prepare upfront to make this easier.