What forms do I need to send to my employees and contractors for tax purposes?
The specific forms you need to prepare and send depend on how your workers are classified. If you have employees who earn hourly wages or salaries and for whom you withhold and remit payroll taxes, you will need IRS Form W-2.
If, instead, workers are independent contractors whose payments are not subject to payroll taxes, you will use IRS Form 1099-NEC. Some small business owners have both employees and contractors on the payroll and must be aware of both filing obligations.
W-2 Forms for Employees
A W-2 form reports an employee's compensation for the previous tax year (January 1 - December 31). The form includes the following information:
- Total compensation.
- Social Security wages.
- Medicare wages.
- Tips.
- Amounts withheld for federal, Social Security, Medicare, and state and local taxes during the year.
The form also includes information about contributions to employer-sponsored retirement plans, pension plans, and employer-sponsored health coverage, as well as certain other less-common compensation, such as moving expense reimbursements and qualified adoption expenses.
If you had an employee who earned any amount of compensation during the tax year, you must file a W-2 form with the IRS and send a copy of the W-2 form to the employee.
1099-NEC Forms for Non-Employees
There are several IRS tax reporting forms under the "1099" category. When reporting compensation paid to non-employee workers during the previous tax year, you'll use the 1099-NEC (Non-Employee Compensation) form. You must file a 1099-NEC form if you made payments of at least $600 to a person or business for services provided to your business during the year.
Note: For many years, employers used Form 1099-MISC to report such compensation. However, the IRS now requires Form 1099-NEC for this purpose. Form 1099-MISC is still used for other types of payments, such as prizes and awards, but not for compensation paid to independent contractors for services.
What is the deadline for filing W-2s and 1099s?
You must provide employees with their W-2 forms and file them with the IRS no later than January 31 (whether filing by paper or electronically).
Similarly, if you paid independent contractors, you must provide Form 1099-NEC to the payee and file it with the IRS by January 31.
If you need to issue a 1099-MISC to report other income payments, such as prizes or awards, you must provide a copy of the form to the payee and the IRS by January 31. However, the IRS allows slightly later deadlines for filing certain 1099-MISC forms by paper or electronically.
What happens if I don't send the W-2s and 1099s on time?
Failing to provide W-2s or 1099 forms to employees and contractors on time can be a costly mistake. The IRS may assess penalties per form that increase the later they are filed. Penalty amounts and limits are periodically adjusted, so it’s important to check the latest details on the IRS penalties for information returns page.
There are also potential IRS penalties for small businesses that file W-2 or 1099 forms with incorrect or illegible information, so it is important to prepare these forms carefully.
Where can I get help with tax filing, reporting and employee classification issues?
Small business owners have to juggle multiple responsibilities and stay on top of competing priorities to keep moving toward their goals. Understandably, W-2 and 1099 reporting may not always be top of mind. Now, with the busy holiday season around the corner, it could be easy to forget about these important filing deadlines.
If you have questions about W-2s or 1099 requirements, or about other applicable small business operations obligations, reach out to a Legal Pro for affordable legal advice.
Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.
