STPS

Switching From 1099 to W2 FAQ:

FAQ About Switching From 1099 to W2

You have realized it’s time to make the switch from 1099 to W2. That’s great! We are so happy to hear that. It’s truly the best thing you can do for your company. That being said, let’s take a moment to talk about what this switch can look like to the state and IRS.

While the state and IRS are going to be happy you made the correction, certain things you do may make them look harder at your company.

In this article, we will go over what we think are best practices and the questions:

• Can you 1099 and W-2 in the same year?

• What should my company consider if we switch from 1099 to W2 in the same year?

• How much would it cost my company?

• How do you change the taxes from prior months?

What are some things a company should consider if they decide to make the switch from 1099 to W-2 but not go back and fix prior months?

On the tax side: you could get notices from the IRS asking why you W-2 and 1099 people in the same year.

You could also have employees of yours figure that out and ask those same questions, so it’s crucial that you communicate with your drivers about what’s going to happen, and what it looks like.

If you don’t go back and fix prior months, your employees are still going to owe money to the IRS for their time spent as a 1099 driver.

How much would it cost my company to fix prior months?

Contrary to popular belief it doesn’t cost your company a lot of money to go back to the first of the year and fix the status of your employees.

Your company would have to fix the FICA.

An example: if you have a driver who made $10,000 before you switch your employees from 1099 to W-2, the self-employment (FICA) on that money is 15.3% ($1,530). Half of that tax money was supposed to be deducted from the employee, which can be recovered from your driver in the form of an advance. The other half of the money would be withheld, so you could set up a payment plan to make up the difference.

Another way to minimize the cost of FICA would be to pay per diem which can reduce the cost by up to $69 a day.

How do you change the taxes on prior months?

The best way to do it is to go back to the original dates of payment and change each one individually.

You would also need to file a first, second, and/or third quarter 941.

You do need time to set the change in motion: prepare your drivers for it, and explain to them what this means. No one likes surprises when it comes to owing money. Making sure that you and your drivers are on the same page with this whole process will be key.

Written by Gentry DeWinter

Gentry graduated from Grand Valley with a Bachelor’s Degree in multi-media journalism. She is an artist who loves videography, and writing, and hopes to one day own multiple dogs.

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