Employee tax forms simplified

Happy New Year! Here’s hoping you have everything in order to provide tax information for independent contractors (ICs) and employees!

No? Well, if you’re scrambling and need a life raft, or if you just need a refresher on what needs to be filed when, here are the basics of employee and independent contractor tax reporting requirements. (We'll address the issue of how to determine whether a person should be classified as a contractor or employee at another time; right now, it is all about tax reporting!)

Documents needed from workers

If you didn't collect these forms when you hired the employee or engaged the contractor, do it ASAP, PDQ, NOW! These following two forms can be printed directly from the IRS website.

  • From employees: Form W-4. Employees are the people you have on staff and who receive a routine paycheck from your company.
    TIP: Have the employees complete the W-4 along with all the other new-hire paperwork.
  • From independent contractors: Form W-9. ICs are generally individuals, partnerships, a Limited Liability Company (LLC), Limited Partnership (LP), or Estate. Attorneys are the exception to this, so even if your lawyer is ‘incorporated,’ you are still required to send a Form 1099 if you paid a total of more than $600. Additionally, you do not need to send 1099s to sellers of merchandise, freight, storage, or similar items.
    TIP: Let the contractor know a completed W-9 must be received prior to your issuing payment.

If you’re scrambling for those forms now, remember for next year’s taxes to get them early on. You should get a W4 from your employee shortly after hire, and you should definitely have a 1099 from your contractors before they get their first check.

Documents to send to workers no later than January 31st

The earlier in January you can issue W-2s, the happier most of your employees will be. The following two forms are examples of the forms, but the online version is not acceptable for filing. Obtain the actual forms from the IRS at 1-800-TAX-FORM, or 1-800-829-3676.

  • To employees: Form W-2. Reports an employee's annual gross wages, Social Security earnings, Medicare earnings, and federal and state taxes withheld from his or her paycheck.
    TIP: The process of creating W-2 forms can start after the last paycheck date of the year.
  • To independent contractors: Form 1099-MISC. Reports the year-end summary of all non-employee compensation. It covers rent, royalties, self-employment, and independent contractor income as well as several other kinds of miscellaneous income.
    TIP: Most of your local office supplies stores sell 1099-MISC forms along with matching envelopes.

Between January 31st and February 28th, employees and ICs have time to review forms W-2s and 1099s for accuracy of reporting amounts, tax ID numbers, and addresses. Make necessary changes and file a corrected form.

Documents to file with the IRS

The IRS requires a summary of forms you have issued to employees and independent contractors.

  • Summary of employees' earnings: Form W-3. Filing this form reports each employee's earnings, etc. as well as the total.
  • Summary of payments to independent contractors: Form 1096. Files the annual summary of payments to all ICs, and submits copies of 1099-MISC reports filed.
The boiled down summaryEmployeesIndependent Contractors
Form you receive before work is performedW-4W-9
Form you issue to individuals by January 31stW-21099-MISC
Form filed with the IRSW-31096

If you need clarification, you can always go straight to the source by visiting the IRS website. I have the site bookmarked and often visit the website to check for updates and changes relevant to current year requirements.

I’m always ready to help small business owners put plans and processes in order during the year so that hectic times like this are as easy to manage as possible. Check out my bookkeeping services; I tailor them to the needs of your business.

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