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, beginning with the 2020 tax year, Form 1099-NEC is required to report this compensation. Form 1099-MISC is still used for other purposes, such as reporting prizes and awards, but it should no longer be used to report compensation paid to independent contractors for services they provided.
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, 2025, whether filing by paper or electronically. Similarly, if you paid independent contractors in 2024, you must provide Form 1099-NEC to the payee and file it with the IRS by January 31, 2025.
If you need to issue a 1099-MISC to someone to report other income payments, such as prizes or awards, you must provide a copy of the form to the payee and to the IRS by January 31, 2025. However, you will have until February 28, 2025 to file it with the IRS if you file on paper, or March 31, 2025, if you file 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. In fact, you may find your business facing IRS penalties of $60 per form if you are between 1-30 days late, with a maximum fine for small businesses of $232,500. The penalty increases to $130 per form for filings between 31 days late through August 1, 2025, with a maximum fine of $664,500 for small businesses. If forms are filed after August 1, the penalty amount goes up to $330 per form, with a maximum fine of $1,329,000 for small businesses. If you intentionally neglect to file the forms, the penalty per form is $660, and there is no limit on the total amount of the penalty.
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 tax filing deadlines. However, any small business owner who pays employees or independent contractors must meet these important requirements in order to avoid tax penalties and IRS scrutiny.
If you have questions about W-2s or 1099 requirements, or about other applicable small business operations obligations, reach out to a Rocket Legal Pro for affordable legal advice. If you or your employees need help preparing and filing your business or personal taxes, reach out to a Tax Pro. This is the easiest and most affordable way to entrust your taxes to a professional.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
